The Reserve Bank of India conducted two variable rate reverse repo (VRRR) auctions on Monday, successfully absorbing ₹1.41 trillion from the banking system as part of continued efforts to manage surplus liquidity. In the seven-day VRRR auction, the RBI notified ₹2.5 trillion but received bids worth only ₹91,980 crore, all of which were accepted at a cut-off and weighted average rate of 5.24 per cent. A separate overnight VRRR auction had a notified amount of ₹1.5 trillion, with total offers received and accepted at ₹49,206 crore, also cleared at the same 5.24 per cent rate. The central bank also announced a two-day VRRR auction worth ₹1.75 trillion scheduled for Tuesday, demonstrating continued focus on liquidity management operations.
Banks parked the notified amounts at a weighted average rate of 5.24 per cent, as reported by Business Standard. The weighted average call rate (WACR), which serves as the operating target of monetary policy, settled at 5.19 per cent against the previous close of 5.16 per cent, remaining flat from the previous session. A money market dealer at a state-owned bank explained that the strong demand resulted from overnight rates falling due to surplus liquidity, with the RBI rate being higher than market rates. The net liquidity in the banking system was in a surplus of ₹3.4 trillion on Sunday, according to latest RBI data, indicating continued excess liquidity conditions in the financial system. The SDF rate, which currently stands at 5 per cent, forms the lower bound of the RBI's policy corridor, with the repo rate in the middle and the marginal standing facility (MSF) rate at the upper bound.
The overnight tri-party repo rate had slipped below the standing deposit facility (SDF) rate of 5 per cent, but rose on Thursday to settle at 5.06 per cent against the previous close of 4.96 per cent, as reported by Business Standard. A dealer at a private bank noted that the TREPS (Treasury bills repurchase) rate had fallen below 5 per cent, prompting the RBI to want overnight rates to remain around the repo rate. The central bank conducted the auction to absorb surplus liquidity from the banking system and keep overnight rates aligned with the policy repo rate currently standing at 5.25 per cent. On August 19, 2026, the overnight segment reached a turnover of ₹628,239.69 crore with a weighted average rate of 4.99%, with call money at ₹11,991.91 crore and triparty repo at ₹444,150.45 crore.
According to Business Standard, a VRRR auction is a liquidity absorption tool through which the RBI temporarily absorbs surplus funds from banks. The central bank's strategy aims to maintain overnight rates around the repo rate while managing excess liquidity in the banking system. Market participants emphasized that the RBI's rate offerings remain attractive to banks given the current surplus liquidity conditions in the financial system. The RBI's money market operations report shows net durable liquidity surplus stood at ₹679,145 crore as of July 31, 2026, indicating strong long-term system liquidity even as the central bank actively absorbs daily liquidity through short-term operations.
Despite daily liquidity absorption operations, the RBI's money market operations report shows net durable liquidity surplus stood at ₹679,145 crore as of July 31, 2026, indicating strong long-term system liquidity. This surplus exists even as the RBI actively absorbs daily liquidity through short-term operations. The surplus cash balance counted for auction by the Government of India was zero on August 19, 2026, while scheduled commercial banks' cash balances with RBI were slightly above the average daily cash reserve requirement of ₹817,404 crore for the fortnight ending August 31, 2026.
