On Monday, 9 June 2025, the Reserve Bank of India (RBI) announced that the daily Variable Rate Repo (VRR) auction will stop from 11 June 2025, that is, from tomorrow. RBI came to this conclusion after reviewing the current liquidity condition of the banking system.
What is a Daily Variable Rate Repo Auction?
The Daily Variable Rate Repo Auction is a liquidity tool used by the Reserve Bank of India (RBI) to manage short-term or day-to-day liquidity in the banking system. This works as the commercial banks borrow funds from the RBI and offer government securities as collateral. Now the interest rate is determined by the auction process, and thus, this is known as “variable repo rate” as the interest rate changes daily at which the RBI lends money to the commercial banks. The market forces decide the rate, unlike in the case of a fixed repo rate.
When was the VRR Auction introduced and why?
The RBI Variable Rate Repo auction was introduced in the market by the central bank itself in January 2025. This has been a daily VRR auction, which the RBI introduced to infuse short-term liquidity in the banking sector. This was carried on with reversals scheduled for the next working day of the auctions. In Mumbai, these auctions have been carried on every working day since January this year.
The VRR auction has been introduced to smooth the liquidity quotient in the banking system for the short term without distorting the balance in the long term.
Final Daily VRR Auction
Today, on 10 June 2025, between 10 am to 10:30 am, RBI conducted the final daily variable repo rate auction, and for this, the notified amount was ₹25000 crore. From tomorrow, there won’t be any such daily VRR auction to take place until and unless the RBI announces any future tranches of similar auctions.
Source: CNBC TV18
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