Financial Markets Eye RBI’s 5.48% Weighted Rate After Rs 468.60 Billion VRRR Auction

Image Source : The Financial Express

The Reserve Bank of India conducted an overnight Variable Rate Reverse Repo (VRRR) auction, receiving bids worth Rs 468.60 billion against a notified amount of Rs 500 billion. The RBI accepted all bids at a weighted average rate of 5.48%, with a cut-off rate of 5.49%, indicating ongoing liquidity management precision.

The Reserve Bank of India (RBI) carried out an overnight VRRR auction as part of its liquidity management operations. The auction aimed to absorb surplus funds from the banking system, ensuring liquidity levels remain within the desired policy corridor.

Auction Details

RBI invited bids worth Rs 500 billion for the overnight VRRR auction. However, bids totaling Rs 468.60 billion were received and accepted in full.

Rates Set

The auction cleared at a weighted average rate of 5.48%, with a cut-off rate fixed at 5.49%, aligned closely with the monetary policy stance.

Liquidity Management

These VRRR auctions are instrumental in managing short-term liquidity fluctuations by allowing banks to park excess funds securely at competitive rates.

Market Impact

The acceptance of almost full bids indicates steady demand for safe instruments amid ample liquidity in the banking system. It reflects RBI’s focus on ensuring overnight rates stay within the Liquidity Adjustment Facility (LAF) corridor.

Monetary Policy Link

The cut-off and weighted average rates correspond well with the standing deposit facility (SDF) and repo rates, maintaining RBI’s target corridor. This supports the transmission of monetary policy and stabilizes short-term borrowing costs.

Surplus Liquidity Context

The Indian banking system continues to exhibit surplus liquidity, estimated around Rs 2.5 lakh crore, requiring careful absorption through VRRR and other market mechanisms to avoid excessive easing of short-term rates.

Notable Updates

The auction contributes to RBI’s wider strategy to balance liquidity, avoid monetary overheating, and support credit flow.

Recent policy efforts such as calibrated Cash Reserve Ratio (CRR) reductions complement VRRR auctions in managing systemic liquidity.

Market analysts expect continued RBI interventions to maintain overnight rates close to policy targets amid evolving macroeconomic factors.

Sources: RBI Press Release, Economic Times, Capital Market, Moneycontrol

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Financial Markets Eye RBI’s 5.48% Weighted Rate After Rs 468.60 Billion VRRR Auction

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