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Key Points

The RBI has decided to discontinue daily VRR auctions starting June 11 due to a massive liquidity surplus in the banking system. Banks have shown muted demand, bidding only a fraction of the notified Rs 25,000 crore in recent auctions. The central bank introduced VRR in January to ease tight liquidity but is now adjusting operations as money market rates trend lower. This move aligns with RBI's strategy to fine-tune liquidity tools based on evolving financial conditions.

Key Points: RBI to End Daily VRR Auctions From June 11 Due to Liquidity Surplus

  • RBI cites Rs 3 lakh crore liquidity surplus for ending VRR auctions
  • Banks bid only Rs 3,711 crore against Rs 25,000 crore VRR
  • 14-day VRR auctions likely to continue for short-term liquidity
  • CRR cut to 3% to release Rs 2.5 lakh crore more
2 min read

RBI to discontinue daily Variable Rate Repo from June 11, 2025 because of liquidity surplus in banking system

RBI discontinues daily VRR auctions as banking system sees Rs 3 lakh crore liquidity surplus, with muted demand for short-term funds.

"Further, on a review of current and evolving liquidity conditions, it has been decided that the daily VRR auctions will be discontinued with effect from June 11, 2025 - RBI"

New Delhi June 10

The Reserve Bank of India (RBI) announced on Tuesday that it will discontinue daily Variable Rate Repo (VRR) auctions starting June 11, 2025.

The discontinuation of the VRR is due to a liquidity surplus in the banking system reaching approximately Rs 3 lakh crore.

RBI said, "Further, on a review of current and evolving liquidity conditions, it has been decided that the daily VRR auctions, as announced in the above press release, will be discontinued with effect from June 11, 2025, Wednesday".

This decision follows muted demand for daily VRR auctions, with banks bidding only Rs 3,711 crore on June 9, 2025 and Rs 3,853 crore on June 10 against a notified VRR of Rs 25,000 crore.

The RBI introduced daily VRR auctions on January 16, 2025, to address liquidity tightness caused by tax outflows and forex interventions. With liquidity now comfortable, the central bank aims to stabilise overnight money market rates, which are trending lower due to the surplus.

Market participants expect 14-day VRR auctions to continue to manage short-term liquidity.

Additionally, the RBI's recent 100 basis point cut in the Cash Reserve Ratio (CRR) to 3.0 per cent is expected to release Rs 2.5 lakh crore, further supporting liquidity.

Variable Rate Repo is a tool used by the RBI to manage short-term liquidity in the banking system. Under this, banks can borrow money from the RBI for a short period by offering government securities as collateral.

The interest rate for borrowing is decided through an auction, where banks bid for the amount they want at different rates. The rate is "variable" because it is determined by the auction rather than being fixed.

The RBI used the VRR to inject liquidity into the system during tight liquidity conditions. Now, with money market rates trending lower and banks flush with funds, the central bank is adjusting its operations accordingly.

This step aligns with the RBI's neutral policy stance and its strategy to adjust liquidity tools in line with market conditions.

- ANI

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Reader Comments

R
Rajesh K.
Good move by RBI! With so much liquidity in the system, daily VRR auctions were becoming redundant. Hope this leads to better lending rates for businesses and home loans 🤞 The CRR cut will also help banks lend more.
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Priya M.
As someone who follows banking news closely, I think RBI is being proactive. But I wonder - is this surplus liquidity temporary? What if global conditions change suddenly? Maybe they should keep some mechanism ready.
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Amit S.
Finally some good news for common people! Banks have enough money now, so they should reduce loan interest rates. My home loan EMI is killing me 😅 RBI should monitor if banks actually pass on the benefits.
S
Sunita R.
The ₹3 lakh crore surplus shows our economy is strong 💪 But RBI must ensure this money is used productively - not just parked in government securities. More credit flow to MSMEs and agriculture needed.
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Vikram J.
While I appreciate RBI's decision, I'm concerned about inflation risks with so much liquidity. Remember what happened in 2010-11? Hope RBI has proper monitoring systems in place this time.
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Neha P.
As a small business owner, I hope banks will now give loans more easily. Last time I applied, they made me run around for 2 months! RBI should conduct surprise checks on banks' lending practices.

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