RBI Absorbs ₹6.02 Lakh Crore Through VRRR Auctions

The Reserve Bank of India (RBI) absorbed ₹6.02 lakh crore from banks through two Variable Rate Reverse Repo (VRRR) auctions on Friday.

The move is part of the central bank's efforts to manage the huge liquidity surplus in the banking system, which has been created partly by strong foreign currency inflows.

In the first three-day RBI VRRR auction, banks parked ₹5,41,975 crore against the notified amount of ₹7 lakh crore, with a cut-off rate of 5.24%. A second three-day auction attracted ₹60,419 crore against the notified ₹1.5 lakh crore, also at 5.24%.

Together, the two operations absorbed ₹6,02,394 crore from the banking system. As of September 3, the banking system liquidity surplus stood at around ₹10.32 lakh crore, according to RBI data.

The surge in liquidity follows the RBI's special forex measures, which mobilised $136.38 billion by August 31. Of this, $127.23 billion came through FCNR(B) deposits, while OFCBs contributed $5.26 billion and ECBs added $3.89 billion.

Government spending on salaries and pensions towards the month-end also added liquidity to the financial system. The abundance of funds has pushed short-term money-market rates lower, with the weighted average call money rate currently around 4.93%, or 32 basis points below the policy rate.

To bring short-term rates closer to the repo rate, the RBI has intensified liquidity absorption, conducting 32 VRRR auctions between August and early September, with maturities ranging from overnight to 14 days.

The RBI's efforts to manage liquidity are crucial in maintaining a balance-of-payments buffer, which could help India maintain a buffer of up to $75 billion in FY27.

The central bank's move to absorb surplus funds is a significant step in managing the liquidity surplus in the banking system, and its impact will be closely watched by market participants and economists.

In conclusion, the RBI's absorption of ₹6.02 lakh crore through VRRR auctions is a notable development in the banking system, and its effects on the economy will be monitored in the coming days.