India’s central bank has announced a step to absorb excess liquidity in the banking system by conducting a short-term cash withdrawal operation.
The Reserve Bank of India (RBI) will carry out a ₹2 trillion Variable Rate Reverse Repo (VRRR) auction for 7 days on Friday. The auction will take place between 2 pm and 2:30 pm, with the funds set to be reversed on April 17.
“In view of the surplus transient liquidity conditions prevailing now, it has been decided to conduct a VRRR auction on Friday,” the central bank said in a release.
The move comes as liquidity in the banking system has turned into a significant surplus, mainly due to the maturity of government securities (G-Secs).
G-Secs worth ₹31,329 crore matured on April 8. Additional maturities of ₹86,403 crore and ₹34,791 crore are scheduled for April 12 and April 17, respectively.
According to RBI data, system liquidity stood at a surplus of around ₹4.55 trillion as of April 9.
“Going ahead, we will continue to be proactive and pre-emptive in liquidity management and ensure sufficient liquidity in the banking system to meet the productive requirements of the economy,” RBI Governor Sanjay Malhotra said after the monetary policy review earlier this week.
The VRRR auction is part of RBI’s ongoing efforts to balance liquidity while ensuring smooth functioning of the financial system.
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