New Delhi, June 18: The Reserve Bank of India (RBI) on Wednesday injected ₹72,300 crore into the banking system through two Variable Rate Repo (VRR) auctions, responding to a sharp decline in surplus liquidity caused primarily by advance tax payments.
The liquidity support measure came as excess funds available in the banking system dropped significantly over the past few days, creating pressure on short-term money market rates. The RBI conducted two separate two-day VRR operations, infusing ₹50,016 crore in the first auction at a cut-off rate of 5.26 per cent and an additional ₹22,284 crore in the second auction.
VRR auctions are among the central bank’s key liquidity management tools, allowing it to provide temporary funds to banks whenever short-term liquidity conditions become tight. The move is aimed at ensuring adequate cash availability in the financial system and maintaining stability in money markets.
According to RBI data, the banking system’s liquidity surplus stood at approximately ₹23,881 crore on June 16, a steep fall from around ₹1.51 lakh crore recorded a day earlier. Market participants attributed the sharp decline to advance tax-related outflows, which typically reduce the amount of money available with banks during the tax payment cycle.
The reduction in liquidity has already started impacting overnight borrowing costs. In recent sessions, key short-term rates have moved above the RBI’s benchmark repo rate, signaling tightening liquidity conditions. The weighted average call money rate on Wednesday traded at 5.37 per cent, exceeding the policy repo rate by around 12 basis points. Meanwhile, the Tri Party Repo (TREPS) rate remained at 5.21 per cent.
Banking and treasury experts believe additional liquidity support measures could follow in the coming days, particularly with Goods and Services Tax (GST) payments expected to create further cash outflows from the banking system.
V. Ramachandra Reddy, Head of Treasury at The Karur Vysya Bank, said that the RBI may continue conducting VRR auctions to ensure sufficient liquidity and prevent excessive volatility in overnight interest rates. He noted that upcoming GST related payments could further tighten market liquidity, making timely intervention necessary.
The central bank has maintained a proactive approach to liquidity management in recent months, balancing its efforts to support economic activity while ensuring that short-term rates remain aligned with the broader monetary policy framework.
Financial market analysts observed that the latest intervention reflects the RBI’s commitment to maintaining orderly conditions in money markets. By providing temporary liquidity support, the central bank aims to ensure that banks have access to sufficient funds to meet short-term requirements without causing undue stress in the financial system.
The development also highlights the seasonal impact of tax payment cycles on banking liquidity. During such periods, funds move from the banking system to government accounts, often leading to temporary shortages that require central bank intervention.
Market participants will closely monitor upcoming liquidity conditions, particularly after GST collections are credited, as these factors could influence future RBI actions. If liquidity pressures persist, further VRR auctions or other liquidity management measures may be deployed to keep overnight rates stable and support smooth functioning of financial markets.
With the latest ₹72,300 crore infusion, the RBI has once again signaled its readiness to act swiftly whenever liquidity conditions warrant intervention, ensuring that the banking system continues to operate efficiently despite temporary funding pressures.