India Central Bank to Conduct 2-Day Variable Rate Reverse Repo Auction for ₹25,000 Crore on October 15

Image Source: Business Standard

The Reserve Bank of India (RBI) will conduct a two-day Variable Rate Reverse Repo (VRRR) auction on October 15, 2025, to absorb ₹25,000 crore liquidity from the banking system. This move aims to align short-term interest rates with the policy repo rate and manage surplus liquidity effectively.

The Reserve Bank of India announced plans for a two-day Variable Rate Reverse Repo auction (VRRR) on October 15, 2025, aiming to absorb ₹25,000 crore from the banking system. VRRR auctions allow banks to park excess funds with the RBI at variable interest rates, enabling the central bank to manage surplus liquidity and stabilize short-term interest rates closer to the policy repo rate.

This auction follows recent RBI monetary policy measures, where the central bank surprised markets with a 50 basis points cut in the policy repo rate and a shift toward a neutral stance. The RBI's continued focus is on maintaining an optimal liquidity level in the banking system to support smooth transmission of policy rates.

In recent weeks, surplus liquidity in the banking system hovered around ₹2.5 to ₹3 trillion, resulting in overnight rates being close to or below the Standing Deposit Facility (SDF) rate, indicating abundant liquidity. VRRR auctions help absorb this excess to prevent downward pressure on short-term rates and ensure rates align with monetary policy goals.

Notable Updates and Major Takeaways

Auction Amount: RBI to absorb ₹25,000 crore liquidity through a two-day VRRR auction on October 15.
Objective: Align short-term money market rates closer to the policy repo rate and stabilize liquidity.
Liquidity Status: Surplus liquidity remains high at approximately ₹2.5–3 trillion, necessitating absorption.
Policy Context: Recent RBI repo rate cuts and a neutral monetary stance guide liquidity management strategy.
Market Impact: VRRR auctions increase the cost of liquidity, encouraging banks to manage funds effectively.
Transmission Goal: RBI aims to improve policy transmission by tightening money market conditions to policy rate levels.

Conclusion

The upcoming RBI two-day VRRR auction is a key step to absorb excess liquidity amid ongoing monetary policy adjustments. By managing liquidity and interest rates carefully, the RBI aims to maintain macroeconomic stability and foster an environment conducive to robust economic growth.

Sources: Market Screener, Reuters, Vision IAS, Business Standard, Financial Express

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India Central Bank to Conduct 2-Day Variable Rate Reverse Repo Auction for ₹25,000 Crore on October 15

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