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• RBI announces four-day variable rate repo (VRR) auction of INR 1.50 lakh crore scheduled for May 25.
• Funds will be reversed on May 29, with bidding window set between 9:30 am and 10:00 am.
• Banking system liquidity surplus has narrowed sharply due to recent GST-related outflows.
• Overnight call money rates have risen above the repo rate, prompting additional liquidity infusion measures.
The Reserve Bank of India (RBI) on Friday announced that it will conduct a four-day variable rate repo (VRR) auction worth INR 1.50 lakh crore on May 25, as part of its liquidity management operations in the banking system. Advertisement
According to the central bank’s notification issued in Mumbai, the auction will be conducted between 9:30 am and 10:00 am, with the reversal of funds scheduled for May 29. The move is aimed at addressing evolving liquidity conditions in the financial system.
The RBI stated that the decision was taken after reviewing current and anticipated liquidity requirements in the banking sector. Variable rate repo operations are used by the central bank as a short-term monetary policy tool to inject liquidity into the banking system based on prevailing market conditions.
At present, liquidity in the banking system is estimated to be in surplus of approximately INR 58,876.29 crore. However, this surplus has narrowed significantly over the past few days, with a decline of nearly INR 1.90 lakh crore driven largely by outflows related to goods and services tax (GST) payments from the banking system.
The tightening liquidity conditions have led to upward pressure on short-term interest rates, with overnight call money rates trading above the RBI’s repo rate of 5.25 per cent. The call money market is a key segment of the money market where banks borrow and lend short-term funds to manage daily liquidity mismatches.
Earlier in the day, the central bank infused INR 81,590 crore of transient liquidity into the banking system through a three-day VRR auction. Transient liquidity refers to short-term fluctuations in cash flows within the banking system, often arising due to tax payments, government transactions or other cyclical movements.
A variable rate repo auction allows banks to borrow funds from the RBI against collateral at market-determined rates through competitive bidding. Such operations are typically used when liquidity conditions tighten temporarily, enabling the central bank to stabilise short-term interest rates and ensure smooth transmission in the money market.
The latest auction reflects the RBI’s continued active liquidity management strategy amid fluctuating system conditions influenced by government cash flows and tax-related outflows. The central bank’s interventions are aimed at maintaining stability in short-term funding markets and ensuring that interest rate movements remain aligned with its monetary policy stance.
Source - PTI
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