The RBI's overnight variable rate reverse repo, or VRRR - usually undertaken to withdraw excess liquidity - saw a subscription of only 390 billion rupees ($4.73 billion) earlier in the day.
"But overnight VRRRs should see healthy responses if they do not coincide with any major outflows."
That lead to a sharp plunge in overnight rates, averaging comfortably below the central bank's repo rate of 6.50%.
The RBI has been intending to maintain overnight rates - currently around 6.40% - around the repo rate and has been proactive in conducting reverse repos to achieve that.
Reuters had reported in June that the central bank may resort to overnight VRRRs, with banks showing reluctance to park funds for a longer period.
Persons:
Banks, Mataprasad Pandey, Shaktikanta Das, Dharamraj Dhutia, Nivedita
Organizations:
Reserve Bank of India, Reuters, Thomson
Locations:
MUMBAI