The Reserve Bank of India successfully conducted a ₹1.41 lakh crore 7-day Variable Rate Repo (VRR) auction on June 23, 2026, injecting substantial liquidity into the banking system. According to the latest RBI data, the funds were infused at a cut-off and weighted average rate of 5.26%, demonstrating the central bank's proactive approach to addressing emerging liquidity pressures. This significant intervention comes as the banking system faced a liquidity deficit of ₹19,971.89 crore as on June 22, marking the first deficit since March 22, 2026 after nearly three months of surplus conditions. The deficit was primarily driven by advance tax payments and higher currency leakage, with market participants noting that the liquidity squeeze was largely attributed to quarter-end advance tax outflows that led to sharp rises in government cash balances.
The liquidity deficit has put significant pressure on overnight money market rates, with call rates standing at 5.35% on Monday compared with 5.33% on Monday, as reported by The Economic Times. The weighted average call money rate rose to 5.38% on Tuesday compared with 5.33% on Monday, according to Business Standard. Similarly, tri-party repo (treps) were trading 0.05-0.07% over the repo rate, according to RBI data. The RBI has been actively infusing transient liquidity into the banking system as it has come under pressure since outflows of advance tax payments. In the recent days, RBI has infused transient liquidity of about ₹2.43 trillion through variable rate repo (VRR) auctions of different tenures to ease liquidity pressures. The RBI's State of the Economy report released on Monday noted that liquidity conditions moderated in May due to continued rise in currency in circulation and forex operations.
According to the latest RBI data, currency in circulation has grown 12.2% year-on-year to cross ₹43.17 lakh crore as of June 15, 2026, contributing to the tightening liquidity conditions. The central bank reported that currency in circulation rose 0.40% on the fortnightly basis and rose 12.2% on a year-ago basis compared to 7.3% increase at the same time last year. In the current fiscal year, currency in circulation moved up 3.7% so far while the reserve money has added 2.6%. Currency leakage has also contributed to the tightening, with cash withdrawals tracking higher than in the corresponding period last year, attributed partly to resilient rural demand and increased withdrawals linked to state government cash-transfer schemes. However, market participants expect conditions to improve as government spending gathers pace towards month-end and funds return to the banking system. A money market dealer at a state-owned bank noted that the deficit is temporary, with government spending expected to improve liquidity conditions, while capital inflows including FCNR(B) window inflows until September are also anticipated to support liquidity over the coming months.
The RBI will also conduct a ₹30,000 crore buyback of government securities on June 29, as reported by The Economic Times. Gaura Sengupta, chief economist at IDFC First Bank, explained that "The current deficit is majorly because of advance tax outflows. There was no intervention that impacted liquidity because the currency has now been appreciating after the FCNR(B) and ECB package." The central bank has regularly conducted variable rate repo operations in the past fortnight to counter the temporary outflow, with the latest VRR operation receiving bids of ₹1.41 lakh crore against the ₹2 lakh crore offered. The RBI's proactive approach demonstrates its commitment to maintaining adequate liquidity levels in the financial system through its Variable Rate Repo operations, with experts attributing the tightening to outflows on account of goods and services tax (GST) payments from the banking system.
