RBI to end daily VRR auctions from June 11 as liquidity improves

Business Standard

4 hours ago

The Reserve Bank of India on Monday said the daily Variable Rate Repo (VRR) auctions to infuse short-term liquidity in banks, introduced on 16 January this year, will be discontinued from Wednesday.
The move comes as banking system liquidity has improved significantly. Net liquidity was in a surplus of Rs 2.45 trillion on Sunday, latest RBI data showed.
'...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 11 June 2025, Wednesday,' the RBI said.
On Monday, against a notified amount of Rs 25,000 crore, banks bid only for Rs 3,711 crore, reflecting muted demand.
The daily VRR auctions were introduced in response to tight liquidity caused by tax outflows and intervention in the foreign exchange market. On 15 January, the banking system was in a net liquidity deficit of Rs 2.22 trillion. The central bank was also conducting long-term VRRs, OMO purchases, and swap auctions in a bid to infuse durable liquidity into the system.
As liquidity conditions improved by the beginning of the current financial year, the RBI gradually reduced the size of the daily VRR auctions, followed by a reduction in the frequency of 14-day VRR auctions.
During the review, the RBI also cut banks' cash reserve ratio requirement by 100 basis points to 3 per cent in four tranches starting September. The reduction in CRR is expected to infuse Rs 2.5 trillion of primary liquidity into the banking system by the end of November.
'This goes well with their neutral stance where they said they would act according to the evolving conditions,' said the treasury head at a private bank. 'The daily VRRs were for short-term liquidity infusion, which is not required right now,' he added.
Since January, the RBI has injected Rs 9.5 trillion of durable liquidity into the banking system. This helped shift liquidity conditions from a sustained deficit since mid-December to a surplus by end-March.
The transition was reflected in muted demand for daily VRR auctions and elevated Standing Deposit Facility (SDF) balances, which averaged Rs 2.0 trillion during April–May. Of the total liquidity injection, Rs 5.2 trillion came through open market purchases (including secondary market purchases), while long-term VRR auctions and USD/INR buy-sell swaps added Rs 2.1 trillion and Rs 2.2 trillion, respectively. Banks park their excess overnight funds with the RBI through the SDF window.
'The decision was along expected lines, given the surplus liquidity and the lack of demand at VRR,' said a dealer at a state-owned bank. 'The RBI governor said on Friday that they will now take decisions according to requirements. We don't need daily VRRs right now—the CRR cut will suffice for transmission. Government spending will also kick in, which will support liquidity,' he added.