The Reserve Bank of India’s decision to discontinue the daily variable rate repo (VRR) auctions is unlikely to have much impact due to huge surplus liquidity in the banking system, treasury heads and economists have said.
Entities availing funds from this instrument will now shift to either call money or Tri-Party Repos (TREPS) market to avail funds, they said.
“Banking system is already in a surplus liquidity mode. Credit offtake is muted as well and going forward, we are seeing Rs 2.5 lakh crore surplus liquidity due to CRR cut. So, there is little need to take recourse to repo options and OMOs will also continue. I see little impact due to the move,” said Madhavankutty G, Group Chief Economist at Canara Bank.
On June 9, the RBI discontinued the liquidity support to the banking system through daily VRR auctions as cash situation improves.
The decision came after systemic liquidity turned positive and crossed the Rs 3 lakh crore-mark. The discontinuation of the daily VRR comes into effect from June 11, the RBI said in a release.
The daily VRR was introduced on January 16, 2025, to support liquidity in the banking system, which was under pressure.
The RBI’s liquidity support in the last few months has helped the system liquidity to turn surplus and go past Rs 3 lakh crore.
Data from the RBI’s website shows that the central bank injected Rs 43.61 lakh crore into the system through the daily VRR auctions. These funds got reversed on the next day.
The central bank also provided Rs 4.84 lakh crore durable liquidity through 15 OMO purchase auctions and $25.2 billion via USD/INR Buy/Sell swap auctions.
Along with some inflows on account of redemption of bonds, interest payments on bonds, month-end salaries and pension, they have helped liquidity to turn positive.
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