The Reserve Bank of India will conduct an overnight variable rate repo auction for 500 billion Indian rupees ($6.25 billion) on Thursday, the central bank said.
"On a review of current liquidity conditions, the Reserve Bank of India has decided to conduct a Variable Rate Repo auction on September 22," RBI said in a statement on Wednesday.
India's banking system liquidity slipped into deficit for the first time in more than three years. The deficit stood at 218.73 billion rupees as on Tuesday, according to RBI.
Overnight rates traded above RBI's Marginal Standing Facility rate through the trading session on Wednesday. RBI repo rate stands at 5.40%, while MSF rate stands at 5.65%.
($1 = 79.9680 Indian rupees)
(Reporting by Dharamraj Lalit Dhutia; Editing by Dhanya Ann Thoppil)