Indian Economy / RBI Absorbs Rs2.23 Lakh Crore via VRRR Auction

Mumbai, Sep 18: Confronted with a massive liquidity overhang in the banking system, the Reserve Bank of India (RBI) on Friday absorbed Rs2.23 lakh crore through a Variable Rate Reverse Repo (VRRR) auction, reinforcing its strategy to align short-term money market rates with the policy repo rate.

According to an official release, the central bank received bids worth Rs2,22,629 crore against the notified amount of Rs2.25 lakh crore and accepted all bids. The weighted average rate stood at 5.24 per cent.

The RBI has been conducting VRRR auctions regularly since last month to drain excess liquidity and ensure overnight rates remain tethered to the policy rate. Liquidity in the banking system was estimated at a surplus of around Rs6.94 lakh crore as of September 17, underscoring the scale of the challenge.

The latest absorption comes a day after the RBI sold government securities worth Rs50,000 crore through an Open Market Operation (OMO) auction. Two more OMO sales of Rs25,000 crore each are scheduled for September 21 and September 28, forming part of the central bank’s broader liquidity management framework.

Earlier this week, the RBI had absorbed Rs3.93 lakh crore through another VRRR auction. In that operation, bids worth Rs3,93,352 crore were received against a notified amount of Rs5 lakh crore, with the entire bid amount accepted at a cut-off and weighted average rate of 5.24 per cent.

Data shows that the liquidity surplus, which stood at around Rs10.73 lakh crore on September 11, has moderated in recent days following successive absorption measures. Policymakers remain focused on balancing liquidity withdrawal with market stability, especially as inflationary pressures continue to demand vigilance.

The RBI’s calibrated use of VRRR and OMO auctions highlights its intent to maintain monetary discipline while ensuring smooth functioning of money markets. Analysts say the central bank’s liquidity operations will remain crucial in the weeks ahead, given the persistent surplus and its potential impact on interest rate dynamics.
(IANS)