RBI Conducts Four-Day Variable Rate Reverse Repo Auction Today

The VRRR is usually undertaken to withdraw excess liquidity from the banking system

The Reserve Bank of India (RBI) said it will conduct a four-day Variable Rate Reverse Repo (VRRR) auction for a notified amount of Rs 1 lakh crore on Monday. According to a release by the central bank, the auction will take place between 2pm and 2:30pm, the release said. The reversal of these funds will take place on June 9. The auction will be conducted on CBS (e-Kuber) platform.

The VRRR is usually undertaken to withdraw excess liquidity from the banking system. Liquidity in the banking system is estimated to be in surplus of around Rs 2.38 lakh crore. The central bank last week conducted a 14-day VRRR auction for a notified amount of Rs 2 lakh crore, but received muted response from the banks, who parked only Rs 50,868 crore.

This was despite huge surplus liquidity in the banking system. Dealers attribute it to that banks refrained from parking funds for longer tenure due to expectation of heavy outflows in the coming days on account of advance tax and good and service tax.

In the April monetary policy, RBI Governor Shaktikanta Das said that in the period ahead, the central bank will remain flexible in meeting the productive requirements of the economy through two-way operations, as may be necessary.

The RBI will maintain the policy repo rate at 6.5 per cent during its upcoming June 8 announcement, considering the easing of retail inflation in April and the potential for further decline, indicating the effectiveness of previous policy rate actions, anticipate experts.

Headed by Reserve Bank Governor Shaktikanta Das, a meeting of the six-member Monetary Policy Committee (MPC) is scheduled for June 6-8. The decision of the 43rd meeting of the MPC would be announced on Thursday, June 8.

After the last MPC meeting in April, the RBI paused its rate hike cycle and stayed with the 6.5 per cent repo rate. Prior to that the central bank had cumulatively hiked the repo rate by 250 basis points since May 2022 in a bid to contain inflation.

The MPC is meeting in the backdrop of consumer price-based (CPI) inflation declining to an 18-month low of 4.7 per cent in April. The Reserve Bank governor recently indicated that the May print would be lower than the April numbers. The CPI for May is scheduled to be announced on June 12.