RBI's VRR auction draws heavy bank demand as liquidity surplus shrinks
Indian banks bid ₹1,62,354 crore at the RBI's VRR auction as the liquidity surplus fell to ₹542 crore, Moody's reports.
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what happened
According to Moody's, banks placed bids worth ₹1,62,354 crore at the RBI's one-day Variable Rate Repo auction on Thursday, against a notified amount of ₹50,000 crore. The central bank accepted ₹50,006 crore at a weighted average rate of 5.55 per cent.
The liquidity surplus in the banking system dropped sharply, from ₹4,86,904 crore on September 30 to ₹542 crore on October 21. Forex reserves also fell from a peak of $780 billion in early September to $726 billion. Gopal Tripathi of Jana Small Finance Bank linked this to maturing short-term buy-sell swaps and intervention in the forex market.
why it matters
The near-disappearance of the surplus suggests money markets are close to neutral, and the RBI is now using tools that inject funds into banks. A seven-day VRR auction for ₹1 lakh crore on October 19 underlines this shift, which matters for expectations on short-term money market rates and Indian bond yields.
market impact
Indian rupee and bonds: shrinking liquidity shifts expectations for money market rates
tags
instruments
sources
- Banks make a beeline at the VRR auction to draw liquidity — Moody's, 22 October 2026 at 16:13 UTC
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