RBI 7-day variable reverse repo cut-off rate is 5.49%

RBI 7-day variable reverse repo cut-off rate is 5.49%

The Reserve Bank of India (RBI) has set the cut-off rate for its seven-day Variable Rate Reverse Repo (VRRR) auction at 5.49%, reflecting significant demand and a reversal of Rs. 1.25 trillion [1]. This auction comes on the heels of last week's Rs. 2 trillion reversal, indicating a substantial uptick in demand for liquidity from banks.

The VRRR auction saw bids worth Rs. 1.42 trillion against the notified amount of Rs. 1.25 trillion. The central bank accepted the notified amount at a cut-off rate of 5.49 per cent, demonstrating robust demand for overnight funds. This demand is primarily driven by the previous week's reversal, where banks parked funds with the RBI [1].

The overnight money market rates have shown a decline, falling to 5.39 per cent from the previous day's 5.54 per cent. This decline suggests a stabilization in the money market, which had been experiencing liquidity stress earlier in the week [1].

The RBI's decision to maintain a variable rate framework for liquidity operations underscores its preference for market-driven adjustments over fixed-rate operations. This approach aligns with the central bank's goal of maintaining flexibility in its monetary policy [2]. The recent review of the liquidity management framework may lead to further changes, including a potential shift to a seven-day operation as the main liquidity tool [2].

The market participants expect the RBI to continue with VRRR auctions, particularly around tax outflows and other periods of liquidity stress. However, the central bank may not need to conduct VRRs in the coming week due to the expected pickup in government spending [1].

In contrast, the South African Reserve Bank (SARB) has announced a 25 basis points cut to its repo rate, aiming to target a 3% inflation rate. This move reflects the SARB's efforts to manage inflationary pressures amidst global tariffs and fluctuating fuel prices [3].

References:
[1] https://www.business-standard.com/finance/news/rbis-7-day-vrrr-receives-significant-demand-reversal-rs-2-trillion-125072501240_1.html
[2] https://economictimes.indiatimes.com/industry/banking/finance/banking/rbi-unlikely-to-re-introduce-fixed-rate-liquidity-operations-sources/articleshow/123015268.cms
[3] https://www.sowetanlive.co.za/news/2025-07-31-kganyago-cuts-rates-hints-at-efforts-to-target-3-inflation/