RBI's Strategic Liquidity Injection Aims to Stabilize Money Markets

The RBI's injection of ₹76,000 crore via Variable Rate Repo (VRR) auctions is designed to alleviate liquidity strains and stabilize short-term borrowing costs. This move is anticipated to lower call money rates, which had been higher than the repo rate, bringing them more in line with the central bank’s target.

In a decisive effort to tackle liquidity challenges in the Indian banking system, the Reserve Bank of India (RBI) has carried out a series of Variable Rate Repo (VRR) auctions, injecting a significant ₹76,000 crore into the financial system. The goal of this initiative is to ease liquidity pressures and stabilize short-term interest rates, particularly the call money rates, which had been exceeding the RBI’s repo rate of 6.5%.

Key Objective
The RBI’s use of VRR auctions is aimed at boosting liquidity in the banking system, thereby lowering the weighted average call rate (WACR) and bringing overnight borrowing costs in line with the repo rate. This intervention is expected to ease liquidity conditions and prevent call money rates from significantly surpassing the current repo rate.

Important Details

Auction Information: On January 20, 2025, the RBI conducted a VRR auction, accepting bids totaling ₹75,772 crore at a cut-off rate of 6.51%. The liquidity injected is set to be reversed on January 21, 2025.
Liquidity Deficit: As of January 19, 2025, the banking system faced a liquidity deficit of ₹1.93 lakh crore, with an average deficit of ₹1.61 lakh crore in January.
Market Impact: On January 20, 2025, the WACR closed at 6.60%, reflecting that overnight borrowing costs were slightly above the repo rate due to the liquidity shortfall.

Expert Analysis
While daily VRR auctions are expected to help reduce volatility in overnight rates, some experts believe that these measures may not fully resolve the higher liquidity deficit. Alok Singh, Group Head of Treasury at CSB Bank, pointed out that while daily VRR auctions can reduce short-term rate fluctuations, they may not provide a lasting solution to the liquidity gap.

Historical Context
This move follows a series of similar actions by the RBI to manage liquidity, including a ₹1.16 lakh crore injection via three VRR auctions in March 2024 amid tight liquidity conditions.

Variable Rate Repo (VRR) – Key Points

Definition: A liquidity adjustment mechanism used by the RBI to inject short-term funds into the banking system.
Interest Rate: Set through an auction, as opposed to a fixed-rate repo.
Purpose: To manage liquidity deficits and stabilize short-term interest rates, such as the call money rate.
Tenure: Typically short-term, often overnight or up to 14 days.
Mechanism: Banks bid for funds at varying interest rates, with the RBI accepting bids starting from the lowest rates.
Frequency: Conducted as needed based on liquidity conditions in the market.
Significance: Ensures that market rates align with the RBI’s policy repo rate.

World’s First Yen Stablecoin

In a historic step for digital finance, Japan officially launched the world’s first yen stablecoin, named JPYC, on October 27, 2025. This marks a turning point in Japan’s transiti

Global Debt Crisis 2025

The global debt crisis is one of the most pressing economic challenges of the 21st century, affecting both developed and developing countries. To address this growing concern, the Sevilla Forum 20

India Trade Deficit 2025 Hits $32B

India’s merchandise trade deficit widened sharply in September 2025, reaching $32.15 billion, marking an 11-month high, according to data released by the Commerce Ministry on October 15. Thi

India Falls to 1.54 Percent in Sept 2025

India's CPI of 1.54 per cent in September 2025 has drawn significant attention as retail inflation in India fell to its lowest level since June 2017. This decline is largely attributed to

RBI UMI & Digital Finance

The Reserve Bank of India (RBI) has introduced the Unified Markets Interface (RBI UMI), a pioneering financial market infrastructure aimed at asset tokenization. Announced in 2025 by RBI Gove

ADB Lowers India’s Growth

The Asian Development Bank (ADB) has recently revised India’s economic growth forecast, a key update for students preparing for current affairs sections in exams like SSC. According to the A

RBI New Gold Loan Rules 2025

In a major step to strengthen industrial financing and support the manufacturing sector, the Reserve Bank of India (RBI) has introduced the RBI New Gold Loan Rules 2025. These reforms, announc

LEADS 2025 – State-Wise Logistics Ranking

On 20 September 2025, Union Commerce & Industry Minister Shri Piyush Goyal launched LEADS 2025 (Logistics Ease Across Different States), a landmark initiative aimed at enhancing logistics effi

India WPI Inflation Rises to 0.52%

India’s wholesale price index (WPI)-based inflation turned positive in August 2025, rising to 0.52% year-on-year. This is a significant rebound from -0.58% in August 2024, signaling an upwar

FDI India Trends 2025

Foreign Direct Investment (FDI) remains a key driver of India’s economic growth. It supports capital formation, industrial development, employment generation, and overall economic stability.