The Reserve Bank of India (RBI) on Tuesday fixed a cut-off closer to the repo rate at a seven-day variable rate reverse repo (VRRR) auction as it looks to bring money market rates closer to the policy rate.

Against a notified amount of Rs 2 lakh crore, the central bank received offers for Rs 1.55 lakh crore — all of which were accepted at a cut-off rate of 3.99 per cent.

The central bank — which has been sucking out liquidity from the system — has kept the variable reverse repo rate a tad below the repo rate in the two previous auctions.

It had fixed a cut-off rate of 3.99 per cent at the three-day VRRR auction held on Monday and 14-day auction on December 17.

The three-day VRRR which came as a surprise to the markets resulted in inter-bank call money rates touching a high of 3.99 per cent.

Though the RBI retained key rates and maintained an accommodative stance a fortnight ago, its liquidity soaking actions at higher rates than the reverse repo rate of 3.35 per cent have led to many observers saying the Indian central bank is raising interest rates by stealth.

Yields on government bonds have also moved up on account of apprehensions that India could face the challenge of rising inflation like some of the other economies. The 10-year bond yield on Tuesday settled at 6.47 per cent against the previous close of 6.44 per cent. They were at 6.35 per cent nearly a month ago.

Analysts said the RBI is almost certain to raise the reverse repo rate at the meeting in February 2022.

Stocks bounce back

The benchmark indices on Tuesday clawed back part of the sharp losses seen on Monday, but the mood remained cautious because of concerns over the Omicron variant and continued selling by foreign portfolio investors (FPIs).

Bargain hunting by investors after the Monday carnage saw the 30-share Sensex spurting around 1079 points on Tuesday to an intra-day high of 56900.74.

The Sensex finally ended at 56319.01 — a rise of 497 points or 0.89 per cent. On the NSE, the broader Nifty rose over 322 points to touch the day’s high of 16936.40, after which it closed at 16770.85 — a gain of 156.65 points.

HCL Technologies led the gainers pack in the Sensex rising about 3.91 per cent.

It was followed by Wipro, Tata Steel, Tech Mahindra, UltraTech Cement and Titan which rose up to 3.66 per cent. PowerGrid was the biggest loser.

“The correction at the end of the session is a clear indication of bears yet ruling the market. The immediate hurdle for Nifty is at 16920 levels and a major support is at 16600. Any move on either side will drive the sentiments of the market,” Rahul Sharma, co-founder Equity 99, said.

“The sentiments are yet weak and we expect further correction in coming days. Investors are advised to remain cautious and add quality stocks on dips,’’ he said.

Rupee rise

Rising for a fourth straight session, the rupee surged 31 paise to close at a nearly two-week high of 75.59 against the dollar on Tuesday as positive domestic equities and a weak US currency in the overseas markets boosted investor sentiment.

“Rupee has seen pullback from its 20 months lows but difficult to say that pain is over as foreigners are continuously selling and Fed is heading for a rate hike as early as the first quarter of 2022,” Dilip Parmar of HDFC Securities said.