RBI Takes Action With Daily VRR Auctions to Manage Liquidity

Starting January 16, 2025, the Reserve Bank of India will conduct daily Overnight Variable Rate Repo auctions to ease the liquidity deficit in the banking system. The first auction today was for ₹50,000 crore to address ongoing liquidity concerns.

Overview of RBI’s Daily VRR Auctions 

The Reserve Bank of India (RBI) has announced a significant move to alleviate the current liquidity strain in the banking system by conducting daily variable rate repo (VRR) auctions on all working days starting today. The initial auction was of ₹50,000 crore concluded today.

These daily VRR auctions will have a reversal on the next working day, except for Fridays when the reversal will occur on the following Monday or the next working day. The auction amount will vary based on RBI’s liquidity assessments.

RBI’s VRR Auction Results

The Reserve Bank of India (RBI) successfully conducted its first daily variable rate repo (VRR) auction today, with a notified amount of ₹50,000 crore. The auction received bids totalling ₹30,760 crore.

The cut-off rate for the auction was 6.51%, which also matched the weighted average rate, indicating a balanced demand and supply at this rate.

Liquidity Deficit Amid GST Outflows

This initiative comes as the banking system faces an increasing liquidity deficit, which stood at ₹2.09 trillion on January 13, 2025. The situation is expected to worsen due to upcoming goods and services tax (GST) outflows later in the month.

RBI’s Effort for Liquidity Stability

RBI’s decision to hold daily VRR auctions is designed to ensure the stability of liquidity conditions in the banking system. Eligible participants, including standalone primary dealers, will be allowed to take part. Market experts believe this daily infusion will help maintain liquidity and offer short-term relief, though further measures might be needed for sustainable liquidity management.

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