RBI to Conduct Rs 2.5 Trillion Seven-Day Reverse Repo Auction to Absorb Surplus Liquidity

The Reserve Bank of India will conduct a 7-day reverse repo auction worth ₹2.5 trillion to absorb surplus liquidity from the banking system and align the weighted average call rate with the repo rate of 5.5%. Despite conducting three previous auctions worth ₹1 trillion each, liquidity remains in surplus by more than ₹3 trillion, prompting the RBI to double the auction amount. The auction aims to move the WACR closer to the policy repo rate.

The Reserve Bank of India (RBI) has announced a significant move to manage surplus liquidity in the banking system. The central bank will conduct a 7-day reverse repo auction worth ₹2.5 trillion on July 10, 2025, to absorb the excess liquidity and align the weighted average call rate (WACR) with the policy repo rate of 5.5%.

Despite conducting three previous auctions worth ₹1 trillion each, liquidity remains in surplus by more than ₹3 trillion, prompting the RBI to double the auction amount. The auction aims to move the WACR closer to the policy repo rate, thereby ensuring monetary policy transmission.

The overnight WACR settled at 5.36% on July 9, 2025, while the overnight tri-party repo rate settled at 5.25%. The market participants expect the bidding amount to fall short of the notified amount due to the large auction size, which matures before GST outflows, potentially supporting some demand at the auction.

The recent liquidity surplus can be largely attributed to higher government spending and lower-than-expected goods and services tax collection, which have eased the usual liquidity pressures. The RBI's VRRR operations are aimed at absorbing surplus liquidity from the system and anchoring short-term rates closer to the policy repo rate.

References:
[1] https://m.economictimes.com/markets/stocks/news/rbi-to-conduct-rs-1-lakh-crore-vrrr-to-manage-surplus-liquidity/articleshow/122237863.cms
[2] https://www.business-standard.com/economy/news/rbi-conducts-rs-2-5-trillion-7-day-reverse-repo-auction-125071001315_1.html
[3] https://m.rediff.com/news/commentary/2025/jul/09/rbi-to-conduct-twoday-auction-to-soak-up-rs-1-trillion/c61cfa817d657a39a4cdbe6a39a14dd2