The curious case of the sudden rise in short term interest rates (and liquid funds losing money) yesterday: a thread🧵
This thread may have more questions than answers, but here goes:
Hajaar excess liquidity, so RBI is sucking out money using VRRR (the sound that liquidity makes when it goes back to RBI temporarily)
Hajaar excess liquidity, so RBI is sucking out money using VRRR (the sound that liquidity makes when it goes back to RBI temporarily)
A VRRR is a Variable Rate Reverse Repo => RBI says you have excess money? Gimme, and bid your rates up to max 3.99% and I will pay.
They do this regularly - 14-day VRRRs, 7 day VRRRs etc. On Tuesday 18th there was a 7 day 200,000 cr. VRRR and banks bid to give at 3.99%
They do this regularly - 14-day VRRRs, 7 day VRRRs etc. On Tuesday 18th there was a 7 day 200,000 cr. VRRR and banks bid to give at 3.99%
Suddenly on the 19th someone remembers that Abeyaar, 20th is GST Payment.
GST goes to a government account which is in RBI. Technically money goes out from banks to govt account. Govt is not spending because budget. And GST is like 100,000 cr. a month.
GST goes to a government account which is in RBI. Technically money goes out from banks to govt account. Govt is not spending because budget. And GST is like 100,000 cr. a month.
All teh excess liquidity is locked in with RBI at 7 day and 14 day VRRRs. See: rbi.org.in/Scripts/BS_Pre… 
Which is basically panic as banks must borrow roughly 40,000 cr. or more from money markets. Overnight rates spike.
Yesterday, Call money went beyond 4%, and the other CCIL acronyms (TREPS, CROMs etc) saw rates jump from about 3.6% to 4%+.
Yesterday, Call money went beyond 4%, and the other CCIL acronyms (TREPS, CROMs etc) saw rates jump from about 3.6% to 4%+.
Liquid funds lost (a small amount of) money. Not huge, but just a mark to market thingy.
Today, RBI conducted a different auction: A VRR, which is when banks can borrow from the RBI. One less R, sounds slightly different.
50,000 cr. borrowed at 4.06% by desperate banks.
Today, RBI conducted a different auction: A VRR, which is when banks can borrow from the RBI. One less R, sounds slightly different.
50,000 cr. borrowed at 4.06% by desperate banks.
Strangely, fixed rate repo (the good old concept no one now remembers) is at 4%. But no one's borrowing from there?
Why are banks borrowing at VRR at 4.06% or TREPs at 4.2% when RBI will lend them money at 4%? I mean this is 100s and 1000s of crores so it makes a difference.
Why are banks borrowing at VRR at 4.06% or TREPs at 4.2% when RBI will lend them money at 4%? I mean this is 100s and 1000s of crores so it makes a difference.
TREPS is 4.2%
CROMS baskets are 4.3%+!
Ignore the acronyms basically this is where overnight borrowing happens (apart from call money markets).
CROMS baskets are 4.3%+!
Ignore the acronyms basically this is where overnight borrowing happens (apart from call money markets).
Today, to stave off a sudden but temporary liquidity issue - RBI does a 75,000 cr. weekend repo (where banks can borrow from RBI) and banks pay 4.09%.
Bids of 122,000 cr.
TREPS still 4.2%, CROMS at 4.29%.
Bids of 122,000 cr.
TREPS still 4.2%, CROMS at 4.29%.
• • •
Missing some Tweet in this thread? You can try to
force a refresh
