The Reserve Bank of India briefly reversed gears on Thursday to pump liquidity into the system through an overnight variable repo auction to counter larger than expected GST collections that suck out money from the system.

So far, the central bank has been mopping liquidity through its variable rate reverse repo (VRRR) auctions. However, strong GST collections — which have been over Rs 1 lakh crore a month — caused inter-bank call money rates to harden to over four per cent.

An RBI statement earlier in the day said it will conduct an overnight variable rate repo auction of Rs 50,000 crore.

In such an auction, the central bank provides liquidity to banks against the collateral of securities.

As compared to the notified amount of Rs 50,000 crore set for the auction, the RBI received bids worth Rs 65,700 crore from banks.

It later fixed a cut-off rate of 4.06 per cent, which is higher than the policy repo rate of four per cent.

“With larger than anticipated collections under the goods and services tax (GST), system liquidity has tightened in this week. This is also reflected in the hardening of overnight money market rates, and in amounts under the fixed rate reverse repo of the liquidity adjustment facility (LAF). Accordingly, it has been decided to conduct a Variable Rate Repo auction on January 20,’’ the central bank said.

In such an auction, the central bank provides liquidity to banks against the collateral of securities. As compared to the notified amount of Rs 50,000 crore set for the auction, the RBI received bids worth Rs 65,700 crore from banks. It later fixed a cut-off rate of 4.06 per cent, which is higher than the policy repo rate of four per cent.