The Reserve Bank of India (RBI) on Tuesday announced that it will discontinue daily Variable Rate Repo (VRR) auctions from June 11, 2025, in light of a growing liquidity surplus in the banking system, which currently stands at approximately ₹3 lakh crore.
In a statement, the RBI said, “Further, on a review of current and evolving liquidity conditions, it has been decided that the daily VRR auctions, as announced in the above press release, will be discontinued with effect from June 11, 2025, Wednesday.”
The decision comes amid tepid demand for daily VRR operations, with banks borrowing just ₹3,711 crore on June 9 and ₹3,853 crore on June 10 against a notified amount of ₹25,000 crore.
The central bank had introduced daily VRR auctions on January 16, 2025, to address temporary liquidity tightness caused by tax-related outflows and foreign exchange interventions. However, with liquidity conditions now easing, the RBI is shifting its focus to stabilising overnight money market rates, which have been trending lower due to excess funds in the system.
Despite the discontinuation of daily operations, market participants expect the RBI to continue with 14-day VRR auctions to manage short-term liquidity as needed.
The move follows the central bank’s recent decision to cut the Cash Reserve Ratio (CRR) by 100 basis points to 3.0%, a measure expected to infuse an additional ₹2.5 lakh crore into the banking system.
The VRR mechanism allows banks to borrow short-term funds from the RBI against government securities as collateral, with the interest rate determined through an auction. It has been an important tool for liquidity management during periods of financial tightness.
With the current surplus, the RBI’s decision is in line with its neutral policy stance and reflects a calibrated approach to adjusting liquidity instruments based on prevailing market conditions.
— ANI