RBI conducts ₹2 lakh crore VRRR auction to absorb surplus liquidity

The Reserve Bank of India (RBI) on Friday, April 10, conducted a 7-day variable rate reverse repo (VRRR) auction for ₹2 lakh crore to absorb surplus liquidity from the banking system.According to the central bank’s release, the auction received bids worth ₹2,09,460 crore, against which ₹2,00,041 crore was accepted.The cut-off rate for the auction was set at 5.24%, while the weighted average rate stood at 5.23%.Also read: RBI proposes time lag, tighter checks to curb digital payment fraud; seeks feedback by May 8A VRRR auction is used by the RBI to absorb excess liquidity from banks for a specified tenure, helping align short-term money market rates with the policy corridor.The move comes at a time when surplus liquidity in the banking system has risen sharply, with estimates suggesting it is hovering around ₹4.5 lakh crore — a near four-year high. Elevated liquidity had pushed short-term rates, including the weighted average call rate, below the policy repo rate, prompting the RBI to step in.The ₹2-lakh crore operation absorbs a significant portion of this surplus in one go, signalling a more active liquidity management approach by the central bank. The RBI has increasingly relied on shorter-tenure tools such as 7-day VRRR auctions to calibrate liquidity conditions based on evolving system needs.Also read: RBI ask banks to speed up inward foreign payments with faster alerts, one-hour reconciliationThe announcement had an immediate impact on markets, with the benchmark 10-year government bond yield rising by about 3–5 basis points to around the 7% mark, reflecting tighter near-term liquidity expectations. Swap rates also moved higher following the announcement.Analysts said the move aims to re-anchor short-term rates closer to the policy rate and improve monetary policy transmission, which had weakened as overnight borrowing costs drifted below the repo rate due to excess liquidity.

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