RBI to Inject Liquidity Control with ₹500 Billion Reverse Repo Auction on October 9

Updated: October 08, 2025 20:48

Image Source: The Economic Times

The Reserve Bank of India will conduct an overnight Variable Rate Reverse Repo (VRRR) auction under the Liquidity Adjustment Facility (LAF) for ₹500 billion on October 9. The move aims to manage short-term liquidity and absorb excess funds from the banking system amid stable monetary conditions.

The Reserve Bank of India (RBI) has announced a ₹500 billion overnight Variable Rate Reverse Repo (VRRR) auction scheduled for October 9, 2025. This liquidity operation under the LAF framework is part of the central bank’s ongoing strategy to fine-tune short-term money market conditions and ensure monetary stability.

Here are the key highlights:

– auction details
The VRRR auction will be conducted on October 9 for a one-day tenor. Banks can park surplus funds with the RBI at a variable rate determined through competitive bidding.

– purpose of the operation
The auction is designed to absorb excess liquidity from the banking system, helping the RBI maintain its policy corridor and prevent inflationary pressures. It also supports orderly functioning of financial markets.

– LAF mechanism in action
The Liquidity Adjustment Facility allows the RBI to manage liquidity through repo and reverse repo operations. The VRRR is a flexible tool that adjusts rates based on market demand, unlike fixed-rate reverse repos.

– recent liquidity trends
The banking system has witnessed surplus liquidity due to muted credit demand and government spending patterns. The RBI’s move aims to prevent distortions in short-term interest rates.

– impact on banks
Participating banks benefit by earning interest on idle funds while contributing to monetary discipline. The auction also signals RBI’s intent to remain proactive in liquidity management without altering the repo rate.

– broader monetary context
The VRRR comes ahead of the next monetary policy review, where the RBI is expected to maintain its stance amid stable inflation and moderate GDP growth. The operation reflects a calibrated approach to liquidity absorption.

This overnight auction reinforces RBI’s commitment to maintaining financial stability and ensuring that excess liquidity does not fuel inflation or asset bubbles. Market participants will closely watch the cut-off rate and bid coverage ratio for signals on short-term rate movements.

Sources: Reserve Bank of India, Business Standard, Moneycontrol, Economic Times