The Reserve Bank of India (RBI) released the results of its seven-day Variable Rate Reverse Repo (VRRR) auction held on Friday. This liquidity absorption operation is part of the central bank’s ongoing efforts to manage surplus liquidity in the banking system.

According to the official notification, the RBI had announced a notified amount of Rs 1 lakh crore for this auction. However, the total amount of bids received from banks and financial institutions stood at Rs 84,975 crore, falling short of the targeted amount. The central bank accepted the entire amount of Rs 84,975 crore offered by participants.

The cut-off rate for the auction was set at 5.49 percent, while the weighted average rate came in slightly lower at 5.45 percent. The notification clarified that there was no partial acceptance of offers at the cut-off rate in this auction.

VRRR auctions are used by the RBI to withdraw excess liquidity from the system for a short duration. These auctions are conducted at market-determined interest rates, unlike the fixed-rate reverse repo, which operates at a pre-announced rate. Through this tool, the RBI fine-tunes liquidity and ensures stability in short-term interest rates.

Unlike the fixed-rate reverse repo, where the interest rate is pre-decided by the RBI, in VRRR, the interest rate is determined through an auction process. Banks bid by quoting the interest rate at which they are willing to deposit their funds with the RBI, and the final rate is based on the outcome of this bidding.

This auction indicates that banks parked lower-than-notified funds with the RBI, possibly reflecting tighter liquidity conditions or alternative investment preferences.

(From ANI)

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