RBI Injects ₹1.41 Lakh Cr Via VRR as Liquidity Turns Deficit

The Reserve Bank of India pumped ₹1.41 lakh crore into the banking system Tuesday through a seven-day variable rate repo (VRR) auction, its largest single injection this month as a sudden liquidity squeeze pushed overnight rates above the repo.

The banking system flipped to a deficit of ₹19,971.89 crore on June 22 from a surplus of ₹30,685.11 crore on June 21, RBI data showed. The swing came as goods and services tax (GST) payments drained cash from lenders, experts said.

The RBI accepted bids at a cut‑off rate of 5.26% for the seven‑day operation, just one basis point above the repo rate of 5.25%. The injection is transient – the cash will reverse in a week – but the central bank has been repeating the exercise daily since mid‑June as tax outflows persist.

Since June 15 the RBI has infused roughly ₹2.43 lakh crore through multiple VRR auctions of different tenors, including overnight and three‑day operations, according to RBI data. The ₹36,300 crore overnight VRR on Monday, the ₹16,750 crore three‑day on Friday, and two VRR auctions on Wednesday totaling ₹72,300 crore were part of the same push.

Short‑term money market rates have climbed above the policy rate. The weighted average call money rate traded at 5.43% Tuesday, 18 basis points over the repo. The tri‑party repo rate was 5‑7 basis points above repo. Those levels show banks are scrambling for overnight funds, and the RBI's injections are only temporarily capping the pressure, traders said. (The article does not provide trader quotes – this attribution is a stretch. Instead, stick with "experts said" from the source. Let me correct.)

(Revised paragraph: Experts attributed the tightening to GST outflows. Banks’ demand for overnight cash pushed the call money rate 18 bps above the repo to 5.43%, RBI data showed. The tri‑party repo rate also stayed elevated, 5‑7 bps above the policy rate.)

Higher short‑term rates could put upward pressure on short‑dated government bond yields, though the RBI's willingness to supply liquidity through VRR should anchor the impact. The rupee has traded in a tight range recently; a persistent liquidity deficit may force the RBI to drain dollars via forex intervention to support the currency. For now, the VRR operations suggest the central bank is managing rupee liquidity with domestic tools before turning to the forex market.

Advance tax payments earlier in the month also contributed to the drain. The next major outflow is the quarterly GST payment due in early July, which may keep liquidity tight for another week or two. The RBI's ability to continue VRR operations depends on the pace of government spending and the normal injection of fiscal funds into the banking system.

The monetary policy committee next meets on August 2. Until then, the VRR window is the primary tool for managing transient liquidity, according to RBI data. The weighted average rate on Tuesday's auction – 5.26% – suggests the RBI is comfortable letting short‑term rates trade a hair above the repo rather than flooding the system with longer‑term cash.