💰 RBI Announces ₹1 Lakh Crore Reverse Repo Auction to Absorb Surplus Liquidity

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In a calibrated step to manage surplus liquidity in the financial system, the Reserve Bank of India (RBI) has announced a ₹1 lakh crore seven-day variable rate reverse repo (VRRR) auction, scheduled for Friday, July 4.

The decision comes as surplus liquidity in the banking sector touched approximately ₹3.75 lakh crore on July 2, prompting the central bank to act swiftly to bring short-term interest rates closer to the policy repo rate of 5.5%.

“On a review of the current and evolving liquidity conditions, it has been decided to conduct a Variable Rate Reverse Repo auction on July 4,” the RBI said in its official communication.

The RBI also cancelled a previously planned 14-day VRRR operation, replacing it with this shorter-term measure to better align with its liquidity management strategy.

🔍 Why It Matters:

• The reverse repo auction enables banks to temporarily park their excess funds with the RBI, helping drain out surplus money from the system.
• It is a critical tool to control volatility in overnight rates like the call money rate and MIBOR.
• The move indicates the RBI’s intent to maintain financial stability without altering its policy stance.

Market participants view the central bank’s action as a sign of its proactive approach in fine-tuning monetary operations while keeping inflation risks and interest rate alignment in check.

This marks the first major liquidity absorption move of this scale since November 2024, reinforcing the RBI’s focus on orderly money market functioning.