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Informist, Tuesday, Jun. 24, 2025

--RBI to hold 7-day VRRR auction for INR 1.00 tln 1000-1030 IST Fri

--RBI: Not to conduct 14-day main liquidity operation Friday

NEW DELHI – The Reserve Bank of India Tuesday said it would conduct a seven-day, INR 1.00-trillion variable rate reverse repo auction at 1000-1030 IST Friday. This is the first time the operation to absorb short-term liquidity will be held since November.

Traders had speculated that the central bank would soon move to mop up liquidity. Liquidity in the banking system has remained in excess of 1% of banks' net demand and time liabilities despite scheduled outflows for advance tax and goods and services tax over the past 10 days, which together drained around INR 3.00 trillion. Despite this, the RBI's net liquidity absorbed from the banking system Monday--a proxy for the systemic liquidity surplus--was INR 2.44 trillion.

RBI Governor Sanjay Malhotra had said in April the central bank would look to maintain a systemic surplus of around 1% of banks' net demand and time liabilities, which, according to the latest data, would indicate a surplus of around INR 2.30 trillion. Further inflows from the government's month-end spending are expected to drive the system surplus up to over INR 3.00 trillion in the coming days.

The VRRR auction will be conducted on the RBI's core banking solution platform e-Kuber. Successful bids will be accepted at their respective bid rates. Bids at or below the repo rate of 5.50% will be rejected, the RBI said. At the last VRRR auction on Nov. 29, banks had parked INR 24.76 billion, against a notified amount of INR 250.00 billion. The central bank has since allowed standalone primary dealerships to participate in its liquidity management operations.

Between the two VRRR auctions, the RBI's Monetary Policy Committee has cut the policy repo rate by 100 basis points to aid slowing growth amid a benign inflation outlook. Between December and March, systemic liquidity was in a consistent daily deficit, which necessitated the central bank providing short-term liquidity support through variable rate repo auctions. It held daily variable rate repo auctions between Jan. 16 and Jun. 10.

In addition, the RBI has infused INR 9.50 trillion of longer-term liquidity since January through open market operations to buy gilts, long-term variable rate repo auctions, and dollar/rupee buy/sell swap operations. The central bank's record surplus transfer of INR 2.69 trillion also added to the government's cash pile by the end of May. The net durable liquidity surplus as of May 30 stood at INR 5.85 trillion, the highest level since Aug. 1, 2022, according to latest data.

While announcing the VRRR auction, the RBI said it will not conduct the 14-day main operation for the upcoming fortnight on a review of evolving liquidity conditions. The central bank has conducted the fortnightly operation only once since March.  End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Reported by Aaryan Khanna

Edited by Rajeev Pai

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