The Reserve Bank of India's ₹1 lakh crore three-day variable rate repo (VRR) auction on June 19 witnessed significantly muted participation from banks, with bids worth only ₹16,750 crore against the notified amount of ₹1 trillion. According to Business Standard, the RBI accepted the entire amount at the auction at a cut-off and weighted average rate of 5.26 per cent. This limited demand from banks reflects limited demand for short-term funds from the banking system despite the central bank's continued liquidity support efforts.
Currently, liquidity in the banking system has fallen to its lowest level this fiscal year, with surplus estimated at around ₹19,163.11 crore as on June 18, according to the latest RBI data. As reported by The Economic Times, this surplus level was the lowest since March 22, 2026, when the banking system was in a liquidity deficit of ₹65,395.64 crore. According to Gaura Sengupta, chief economist at IDFC First Bank, the current decrease in surplus is majorly because of advanced tax outflows, with no intervention impacting liquidity as the currency has been appreciating for the past week. During quarterly advance tax outflows, economists estimate around ₹2 lakh crore exits from the banking system, contributing to the current liquidity deficit.
Money market rates have hardened significantly, with the weighted average call money rate rising to 5.37% on Thursday, compared to an average of 5.16% a week ago, as reported by The Economic Times. This represents a significant departure from the central bank's repo rate of 5.25 per cent, indicating strained market conditions. The tightening liquidity conditions have pushed market rates above the RBI's policy framework, with the weighted average call rate showing some stabilization at 5.33 per cent on Thursday, compared with 5.35 per cent on Wednesday, but renewed pressure on short-term funding rates continues.
To ease liquidity pressures and keep overnight money market rates in check, the central bank has infused transient liquidity of about ₹1.89 lakh crore through variable VRR auctions of different tenures over the past few days. Of the total infusion, the RBI injected ₹72,300 crore on Wednesday through two VRR auctions, ₹89,440 crore via a seven-day VRR auction on June 16, and ₹28,220 crore through an overnight VRR auction on June 15, according to RBI data. As reported by The Economic Times, the RBI has conducted three VRR auctions this week, with maturities ranging from overnight to seven days, providing temporary liquidity support to the banking system. The muted participation in the latest VRR auction indicates that despite the central bank's liquidity support measures, banks are showing limited demand for short-term funds.
