VRRR auction draws robust response amid surplus liquidity in the system
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The Reserve Bank of India (RBI) received significantly higher responses for the variable rate reverse repo operation (VRRR) auction on the back of more than ₹4 lakh crore surplus liquidity in the banking system.The seven-day VRRR operation, seeking to absorb liquidity from the banking system, received bids for ₹1.70 lakh crore, higher than the notified amount of ₹1 lakh crore. The RBI accepted the notified amount at a weighted average rate of 5.44%. This amount will be reversed on July 11.In the previous 7-day VRRR auction , the RBI received bids for ₹84,975 crore, lower than the notified amount of ₹1 lakh crore, and the cut-off weighted average rate was 5.45%. Banking system liquidity stood at a sharp surplus of ₹4.04 lakh crore on July 3-the highest since May 19, 2022. Of the surplus, banks have parked ₹3.27 lakh crore in the standing deposit facility (SDF) wherein the RBI offers 5.25%.Further infusion of liquidity will come after the impact of the CRR cut, which would release ₹2.5 lakh crore of primary liquidity starting September until December 2025."The focus of the VRRR is on transmission, the intent will be to make sure that the treps rate does not fall below the SDF rate, rather than getting the call rate to repo. VRRR does not remove liquidity, but increases the cost of liquidity, thus pushing up overnight rates," said Gaura Sengupta, chief economist of IDFC First Bank Treps stands for Treasury Bills Repurchase. On Friday, the treps rate stood at 5.18%, while the call rate was at 5.29%, CCIL data showed. The focus of the VRRR is to bring overnight rates (treps and call rate) within the liquidity adjustment facility (LAF) corridor. LAF corridor stands between 5.25% to 5.75%, with the midpoint of 5.50% as the repo rate
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