The Reserve Bank of India (RBI) on Friday conducted another variable rate repo auction (VRR) auction to ease the liquidity deficit in the system.

Against the notified amount of ₹1,25,000 crore, the RBI received bids for ₹1,39,365 crore. It subsequently allotted ₹1,25,008 crore at a cut-off rate of 6.51 per cent.

The VRR is a tool in the central bank’s arsenal to infuse short-term liquidity into the banking system. Banks participate in the auction by bidding for the notified amount offered by the RBI at variable rates.

The RBI then fixes a cut-off rate which has been around the repo rate in recent auctions.

In a variable rate reverse repo (VRRR) auction, the RBI sucks liquidity from the system if it sees money market rates distancing from the repo rate, which is now at 6.50 per cent.

This is the second VRR such auction in this week. On Wednesday, the RBI had
conducted a two-day variable rate repo auction for ₹75,000 crore.

However, the response was not strong as it received bids for ₹71,830 crore, all of which were accepted at a cut-off rate of 6.51 per cent.

On May 21, the RBI held a VRR auction of ₹1,25,000 crore, which saw participants making bids worth ₹1,97,142 crore. It also held an auction (14-day) for a similar amount on May 14, where the cut-off was kept at 6.65 per cent.

These liquidity infusion measures have come as it has remained in a deficit mode. Latest data shows the deficit running at ₹2,37,325 crore.