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The Reserve Bank of India (RBI) received bids worth ₹97,315 crore in its two-day Variable Rate Reverse Repo (VRRR) auction on Wednesday, against the notified amount of ₹1 trillion. The central bank accepted the entire bid amount at a cut-off rate of 5.49 per cent, higher than the 5.47 per cent cut-off in the previous seven-day VRRR auction held on July 4, which had attracted bids totalling ₹1.7 trillion.
Caution prevails ahead of expected ₹2 trillion auction
Market participants attributed the lower-than-notified bidding to cautious sentiment ahead of an expected ₹2-trillion VRRR auction announcement. Additionally, the maturity of Wednesday’s operation coincides with the reversal of the previous VRRR, further curbing participation.
“There is expectation of a ₹2-trillion VRRR announcement either today or tomorrow, which is why there is caution,” said a dealer at a primary dealership. “Also, there is no clarity on whether the RBI wants the overnight rate at 5.50 per cent or somewhere between the SDF and the repo rate. This uncertainty is leading to caution and a higher cut-off,” he added.
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Call and TREP rates trend higher amid policy signal ambiguity
There is also uncertainty about the RBI’s broader rate strategy — whether it intends to steer the overnight call rate closer to the 5.50 per cent repo rate, or maintain it within the corridor between the Standing Deposit Facility (SDF) rate of 5.25 per cent and the repo rate.
The overnight Weighted Average Call Rate (WACR) was trading at 5.34 per cent, up from the previous close of 5.26 per cent. The overnight TREP rate also rose to 5.29 per cent, compared with 5.13 per cent on Tuesday. Dealers said the call rate had inched up to 5.30 per cent ahead of the expected announcement.
Banking system liquidity remains in surplus
As of Tuesday, the net liquidity in the banking system was in surplus by ₹3.07 trillion, according to the RBI’s latest data.
The RBI conducts VRRR operations to absorb excess liquidity from the banking system and to keep short-term rates aligned with the policy repo rate.
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