RBI absorbs ₹2.9 lakh crore to suck excess liquidity
The Reserve Bank of India absorbed ₹2.9 lakh crore from the banking system through overnight Variable Rate Reverse Repo auctions. This move is intended to manage excess liquidity in the market, which has recently exceeded ₹9 lakh crore.
Why it matters
Effective liquidity management by the central bank is crucial for maintaining interest rate stability and controlling inflation in the Indian economy.
The Reserve Bank of India (RBI) absorbed nearly ₹2.9 lakh crore from the banking system through overnight Variable Rate Reverse Repo (VRRR) auctions on September 16, as part of its efforts to suck excess liquidity.
The RBI conducted the liquidity-absorption operation in two tranches. The first auction, targeting ₹2,50,025 crore, received bids worth ₹3,17,088 crore. The central bank accepted ₹2.5 lakh crore at a cut-off rate of 5.4%, which was also the weighted average rate.
In the second auction, the RBI had set a target of ₹1 lakh crore but received bids worth only ₹40,302 crore. The entire amount was accepted at a cut-off rate of 5.4%.
VRRR is a monetary-policy tool used by the RBI to absorb surplus liquidity from the banking system. Banks park their excess funds with the central bank for a specified period in exchange for interest.
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