RBI to inject Rs 50,000 cr via two-day VRR as call rate hits above repo rate

Reserve Bank of India

The Reserve Bank of India (RBI) will conduct two-day variable rate repo (VRR) auction of Rs 50,000 crore on July 23, after the overnight call money rate surged past RBI’s repo rate.

The reversal of these funds will take place on July 25, as per RBI’s release. The Reserve Bank of India (RBI) carries out Variable Rate Repo (VRR) auctions to manage liquidity in the banking system, by injecting or absorbing surplus liquidity and impacting the overall money supply.

The RBI shifted its liquidity management stance from absorption to injection after the weighted average call money rate rose to 5.62 percent on July 22, 12 bps above the repo rate of 5.50 percent. The call money rate remained elevated at 5.79 percent on July 23, significantly higher than the key policy rate.

The announcement comes at a time when liquidity in the banking system is in huge surplus, at around Rs 2.42 lakh crore.

In recent weeks, the central bank has been conducting variable rate reverse repo auctions to absorb surplus liquidity from the banking system and align the call money rate with the repo rate. Following the extension of trading hours in the call money market, volumes have surged sharply, consistently ranging between Rs 15,000 crore and Rs 19,000 crore.

Earlier, Moneycontrol reported that the share of call money in the total volume of the money market has risen over 3 percent in the last few days, which experts have attributed to the extension of trading hours by the Reserve Bank of India (RBI) for the overnight market from July 1.