To increase liquidity, the introduction of Daily Variable Rate Repo (VRR) by RBI has brought rapid growth in public sector banks. Nifty PSU Bank index is up nearly three percent. Indian Bank, Bank of Baroda, Union Bank and Bank of India have risen three to four percent. There is also a boom in metal and capital goods. RBI has taken a big step to increase cash in the banking system. RBI has announced to start variable rate repo every working day. Its direct impact has been seen on bond yields. Giving more detailed information on this news, CNBC TV-18’s Lata Venkatesh said that this step of RBI will reduce the cash shortage of banks.
Lata further said that RBI has taken a big step to increase cash in the system. RBI has restarted variable rate repo. Due to this step of RBI, bond yield has decreased by 5 basis points. RBI’s move will remove cash shortage in the system. Daily repo was not described as good in the framework report on inflation. From February 2020, the daily repo was replaced with a 14-day repo. RBI wanted banks to get into the habit of 14 day repo. RBI does not want to become the treasury manager of banks.
Lata says that easy cash is pointing towards a rate cut in February. At present there is a cash shortage of Rs 50,000 crore in the system. This shortfall will be filled by daily repo. Along with this move, RBI has also done Forex swaps.
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Focus on banking shares
Due to the news, there has been a strong rise in banking shares today. At present SBI BANK is trading around Rs 768 with an increase of Rs 13.50 i.e. 1.79 percent. At the same time, Bank of Baroda is seen at Rs 228.65 with a rise of about 3 percent. PNB is also trading at Rs 100.23 with a rise of 2.02 percent. IOB is seen with a gain of 0.78 percent at Rs 50.30 and Canara Bank is seen with a gain of 2.78 percent at Rs 97.32.