RBI to conduct Rs 1 lakh crore VRRR for the first time since November 2024

The Reserve Bank of India will conduct a 7-day variable rate reverse repo (VRRR) operation on June 27, for the first time since November 2024. The VRRR - an operation that temporarily drains liquidity from the banking system - will be done for a notified amount of Rs 1 lakh crore. This will be reversed on July 4. Under this facility banks park surplus money with RBI and the interest rate is decided through competitive bidding.

The announcement of VRRR comes at a time when banking system liquidity is in a surplus of Rs 2.4 lakh crore, RBI data showed. For June, average surplus stood at Rs 2.76 lakh crore.

Deutsche Bank's Kaushik Das and HDFC Bank's economist Sakshi Gupta had stated in their reports that the RBI is likely to conduct a VRRR operation, as first reported by ET in its June 16 edition. This move is expected to cause the call and treps rates to align within the liquidity adjustment facility (LAF) corridor of 5.25% to 5.75%.


The RBI has also decided to cancel the 14-day main VRR operation on June 27 after reviewing liquidity conditions.

“It seems like the RBI is smoothing out the frictional surplus liquidity and bringing the call and treps rate closer to the repo rate,” said Sakshi Gupta, principal economist at HDFC Bank.

On Tuesday, the call rate stood at 5.27%, while the average treps rate was 5.20%. These overnight rates (call and treps) are expected to harden on Wednesday, experts said.

The announcement by the RBI also surprised a section of market participants as transmission of deposit rates is yet to be fully completed.

“There were signals that such an operation may come, but this is sooner than expected. Further cues would be taken from the auction and we will have to see how the market responds to it in terms of bids,” said Gaura Sen Gupta, chief economist at IDFC First Bank.