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RBI’s 3-Day VRRR Auction Draws Tepid Response—Liquidity Surplus Keeps Rates in Check

Updated: July 15, 2025 11:04

Image Source : Business Standard
The Reserve Bank of India (RBI) accepted bids worth Rs 574.50 billion at its threeday Variable Rate Reverse Repo (VRRR) auction held on July 15, 2025. The auction was aimed at absorbing excess liquidity from the banking system, but drew bids well below the notified amount of Rs 1 trillion, reflecting cautious sentiment among banks.
 
Key Highlights:
  • Total bids received: Rs 574.50 billion against a notified Rs 1 trillion
  • Cutoff rate: 5.49%
  • Weighted average rate: 5.49%
  • Auction tenor: 3 days, maturing on July 18
Market Context:
  • The undersubscription signals banks’ preference for shortertenor liquidity options amid a surplus of Rs 3.4 trillion in the system.
  • Overnight call rates continue to hover near the Standing Deposit Facility rate of 5.25%, below the repo rate of 5.5%.
  • The RBI has been conducting frequent VRRR auctions to keep shortterm rates aligned with its monetary policy corridor.
Why It Matters:
  • The subdued demand suggests banks are holding back due to upcoming reserve maintenance cycles and midmonth tax outflows.
  • Analysts expect the RBI to continue using shortduration VRRRs to manage liquidity without aggressively draining the surplus.
  • With a 100basispoint CRR cut set to inject Rs 2.5 trillion into the system by yearend, liquidity is expected to remain elevated.
Outlook:
  • The RBI may adjust auction sizes and tenors dynamically to maintain orderly market conditions.
  • Future VRRRs will likely remain a key tool for shortterm liquidity calibration.
Sources: Business Standard, The Hindu BusinessLine, NDTV Profit.

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