Overnight VRR Auction Alert: RBI Plans Rs 1.25 Trillion Infusion on September 25, 2025

The Reserve Bank of India (RBI) will conduct an overnight Variable Rate Repo (VRR) auction on September 25, 2025, aiming to inject Rs 1.25 trillion into the banking system as part of fine-tuning liquidity management. This move comes amid tightening systemic liquidity conditions driven by tax outflows and other temporary factors.

Key Highlights:

- Auction Date and Size: The auction is scheduled for September 25, 2025, with a notified amount of Rs 1.25 trillion to be infused overnight.
- Objective: The VRR auction is designed to address liquidity shortages in the financial system by providing short-term funds to banks against government securities as collateral, with interest rates determined through bidding.
- Liquidity Tightening Context: Systemic liquidity has been contracting recently, with surplus liquidity sliding from Rs 1.90 trillion to around Rs 63,745 crore within days, reflecting temporary pressures largely due to tax payments.
- Recent VRR Auctions: Previous overnight VRR auctions witnessed strong participation, with banks bidding amounts exceeding notified limits at cut-off rates near the policy repo rate, indicating healthy demand.
- Rate Framework: The auction bidding rates typically hover around the policy repo rate (currently 5.50%). The liquidity adjustment facility corridor, including the marginal standing facility (MSF) and standing deposit facility (SDF), sets upper and lower band rates for money market operations.
- Broader Monetary Policy: This VRR auction aligns with RBI’s ongoing efforts to maintain overnight money market rates close to the policy rate and ensure orderly liquidity conditions during this transitional phase.
  
RBI’s variable rate repo mechanism allows for flexible, market-driven pricing to efficiently manage liquidity tightness without affecting durable liquidity conditions. Banks utilize this auction to meet short-term funding needs, supporting overall market stability.

Source: Financial Express, Business Standard, and RBI official statements