The Reserve Bank of India will conduct a 5-day Variable Rate Repo auction under the Liquidity Adjustment Facility on January 2, injecting ₹1 trillion into the banking system. The move aims to manage short-term liquidity conditions amid evolving money market dynamics.
The Reserve Bank of India has announced a 5-day Variable Rate Repo (VRR) auction under the Liquidity Adjustment Facility (LAF), scheduled for January 2. The auction will be for a notified amount of ₹1 trillion, reflecting the central bank’s active liquidity management strategy.
This operation comes at a time when banking system liquidity conditions are closely monitored due to advance tax outflows, government cash balances, and year-end funding requirements. By deploying a VRR auction, the RBI allows market participants to bid at rates aligned with prevailing liquidity conditions rather than a fixed policy rate.
Key Highlights
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VRR auction tenor set at 5 days, commencing January 2
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Total notified amount fixed at ₹1 trillion
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Operation conducted under the Liquidity Adjustment Facility framework
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Aims to address transient liquidity mismatches in the banking system
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Supports orderly functioning of money markets without altering policy stance
Market participants view VRR operations as a flexible tool that helps stabilize short-term interest rates while ensuring adequate liquidity transmission. The RBI’s continued use of such instruments underscores its focus on maintaining financial stability and smooth monetary operations.
Sources: Reuters