RBI Discontinues VRR Auctions As Liquidity Stabilises
In a significant move in its liquidity management strategy, the Reserve Bank of India has discontinued its daily Variable Rate Repo auctions following an improvement in banking system liquidity.
At the start of 2025, the RBI had been actively conducting daily and longer-tenor VRR auctions to inject short-term liquidity, responding to a period of tightness caused by tax outflows and heavy forex interventions. These auctions allowed banks to borrow funds at market-determined rates, helping to stabilise overnight rates and ease funding pressures.
By April, the RBI began scaling back VRR operations as liquidity conditions improved. The daily VRR auction size was halved, and the central bank skipped its 14-day VRR auction for several consecutive fortnights, citing a review of ‘evolving liquidity conditions'. As of June 8, liquidity in the banking system stood at a surplus of Rs 2.45 lakh crore.
The decisive move came during the June monetary policy meeting, where RBI Governor Sanjay Malhotra announced a 100 basis point cut in the cash reserve ratio, to be implemented in four tranches by the end of December 2025. This is set to inject Rs 2.5 lakh crore of durable liquidity into the system.
With liquidity now in comfortable surplus, the RBI no longer needs to rely on frequent VRR auctions to inject funds. The CRR cut provides a more permanent solution, ensuring banks have ample resources for lending and monetary transmission.
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