The Reserve Bank of India will discontinue the daily Variable Rate Repo (VRR) auctions starting June 11 - owing to muted demand - as liquidity in the banking system appears to have reached a surplus of close to Rs 2.75 lakh crore, thus reducing the need for daily short-term injections.
The daily VRR window was introduced on January 16 this year by the RBI to address a tightening of banking system liquidity, with VRR auctions reaching up to Rs 50,000 crore a day to meet the system’s requirement. However, the situation has substantially changed since then.
By the end of May 2025, the central bank’s liquidity injections through VRR had dropped to their lowest level in months, falling to Rs 97,861 crore in May compared to Rs 13.48 lakh crore crore in January.
On June 10, the last day of the daily VRR window, banks bid for only Rs 3,711 crore against the notified Rs 25,000 crore, an indication that liquidity pressures have significantly eased and demand for short-term funds by banks has waned.
The RBI’s announcement of a 100 bps reduction in the Cash Reserve Ratio (CRR) - to be implemented in phases through November – is also expected to help the banking system with a surplus liquidity. The move is slated to release around Rs 2.5 lakh crore of durable liquidity into the system, further supporting the central bank’s decision to phase out daily VRR operations.
While daily VRRs are being discontinued, the RBI will continue to conduct longer-term liquidity operations, such as the fortnightly 14-day VRR auctions, as part of its regular toolkit to fine-tune system liquidity.
In addition to VRR, the central bank will rely on instruments like the Standing Deposit Facility (SDF), Open Market Operations (OMO), and forex swaps to manage liquidity in alignment with its policy stance.
OMOs were first introduced in January, aimed to provide long-term liquidity, with its first purchase auction conducted on January 30.
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