To ease liquidity tightness in the banking system, the Reserve Bank of India (RBI) has decided to conduct daily Variable Rate Repo (VRR) auctions until further notice. The first such auction will be conducted on January 16 for ₹50,000 crore.

With the liquidity deficit, which has come about due to RBI’s intervention (aimed at ensuring gradual depreciation of the Rupee against the Dollar) in the forex market, estimated at about ₹2 lakh crore as on January 14, market players say the move couldn’t have come at a better time.

The daily liquidity support via VRR auction could, to an extent, neutralise the (Rupee) liquidity-draining effect of RBI’s forex market intervention. This could also soften Government Security yields.

RBI, in a statement, said: “On a review of current and evolving liquidity conditions, it has been decided to conduct Variable Rate Repo (VRR) auctions on all working days in Mumbai with reversal taking place on the next working day, until further notice…..The auction will be conducted between 10:00 AM and 10:30 AM every day.

The Reserve Bank will decide the auction amount based on assessing the liquidity conditions.

Standalone Primary Dealers will be allowed to participate in these auctions, along with all other eligible participants, RBI said.

Only one of the six VRR auctions conducted so far this month was overnight, with the rest for tenors of 3, 4, 5, and 14 days. The central bank conducted two 4-day VRR auctions in the first fortnight of January 2025.

Anticipating liquidity stress in the banking system, the RBI reduced the cash reserve ratio (CRR) of all banks to 4.0 per cent of their deposits in two equal tranches of 25 bps each with effect from the fortnight beginning December 14, 2024 and December 28, 2024. This released primary liquidity of about ₹1.16 lakh crore to the banking system.