The Reserve Bank of India (RBI) on Wednesday injected ₹72,300 crore of short-term liquidity into the banking system through two Variable Rate Repo (VRR) auctions after surplus liquidity declined sharply due to advance tax outflows.
The Central Bank infused ₹50,016 crore through a two-day VRR auction, with the cut-off rate set at 5.26 per cent. In addition, it injected another ₹22,284 crore through a separate two-day VRR operation conducted on the same day. VRR auctions are one of the RBI’s key liquidity management tools and are used to address temporary mismatches in liquidity conditions within the banking system.
According to RBI data, surplus liquidity stood at approximately ₹23,881.21 crore on June 16, a significant decline from the surplus of around ₹1.51 lakh crore recorded on June 15.
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Market participants attributed the sharp reduction in surplus liquidity primarily to outflows related to advance tax payments. They also indicated that the RBI may continue to conduct similar liquidity operations over the coming days to ensure adequate liquidity in the financial system.
“Given the contraction in surplus liquidity and the likelihood of additional outflows due to upcoming goods and services tax payments, the RBI may undertake more variable rate repo auctions to support liquidity conditions and prevent overnight rates from rising excessively,” said V. Ramachandra Reddy, Head of Treasury at The Karur Vysya Bank.
Over the past several sessions, overnight money market rates have traded above the RBI’s policy repo rate as liquidity conditions tightened, prompting the central bank to step in with temporary liquidity support measures.
On Wednesday, the weighted average call money rate was quoted at 5.37 per cent, around 12 basis points above the repo rate. Meanwhile, the Treasury Bills Repurchase (TREPS) rate was trading at 5.21 per cent.
The RBI’s liquidity infusion is aimed at easing short-term funding pressures, stabilising money market conditions and ensuring that overnight borrowing rates remain aligned with the central bank’s monetary policy framework.
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