INSUBCONTINENT EXCLUSIVE:
MUMBAI: India's central bank stepped up its liquidity management efforts with a record Rs.3.5 lakh crore reverse repo exercise scheduled
for Friday, aiming to correct the anomalies between two overnight interest rates.
The Reserve Bank of India (RBI) will conduct a variable
reverse repo auction where banks can park their excess cash in the system that is sloshing about with Rs 2.60 lakh crore of liquidity.
The
tenor of these auctions will be 13 days
So, banks will earn interest on parked money for the period.
In the inter-bank call money market, the overnight rate surged as much as 5.75
percent, 60 basis points higher than the repo rate
A basis point is 0.01 percentage point
The differential is seen as a key barometer of calmness
Call money market is unsecured where banks lend to one another.
Overnight rates in the Triparty Repo Dealding and Settlement (TREPs), a
collateralisd borrowing and lending platform, are nearing zero.
A rate differential between collateralised and unsecured market is nothing
But the gap has winded too far providing arbitrage opportunities to some cash-rich banks, which are borrowing from TREPs only to lend in the
the past few weeks, the RBI has been infusing liquidity into the system, which appears significantly strained by the Covid-19 onslaught that
has charred financial assets across the globe.
Through various repo measures, the central bank proposed to inject up to Rs 3.80 lakh crore