RBI Injects ₹1.45 Lakh Crore via VRR Auctions to Ease Liquidity Crunch

24th January, 2025

The Reserve Bank of India (RBI) addressed the prevailing liquidity deficit by injecting ₹1.45 lakh crore on Thursday via two overnight Variable Rate Repo (VRR) auctions. The first auction, amounting to ₹1.25 lakh crore, attracted bids worth ₹1.69 lakh crore, while the second auction of ₹50,000 crore received bids totaling ₹20,668 crore. The RBI’s objective is to align overnight rates with the repo rate, which currently stands at 6.51%.

Understanding Variable Rate Repo (VRR)

The Variable Rate Repo (VRR) is a short-term liquidity adjustment tool employed by the RBI to supply funds to the banking system. Under this mechanism, banks borrow funds at an interest rate determined through an auction process, allowing flexibility based on market conditions.

Upcoming Liquidity Measures

To further ease the liquidity crunch, the RBI has scheduled another VRR auction worth ₹2 lakh crore on Friday, along with a 14-day auction of ₹1.75 lakh crore maturing on February 7. These initiatives follow a significant liquidity shortfall of ₹2.87 lakh crore recorded on Wednesday, primarily attributed to monthly GST payments.

Government Securities Buyback Operations

Apart from VRR auctions, the RBI also conducted a bond buyback operation worth ₹9,666 crore to manage liquidity by repurchasing government securities. The buyback process attracted bids totaling ₹23,279 crore, with the RBI accepting half of the notified amount of ₹20,000 crore.

Ensuring Stability in Overnight Rates

Market analysts believe that these measures reflect the RBI's firm commitment to maintaining overnight rates near the policy repo rate, ensuring efficient liquidity management within the banking system.

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