In a significant move to tackle liquidity concerns, the Reserve Bank of India (RBI) has announced daily variable rate repo (VRR) auctions on all working days in Mumbai, effective from Friday. The auctions aim to address the current liquidity deficit, which has surpassed ₹2 trillion. The initiative will begin with a notified amount of ₹50,000 crore, providing much-needed relief to banks amid tight liquidity conditions.

According to recent data, the liquidity shortfall in the banking system stood at ₹2.09 trillion on Tuesday, following a deficit of ₹2.5 trillion on Monday. The situation is expected to worsen with upcoming GST outflows later this month. The RBI clarified that the auctions will have a one-day reversal, except for Fridays, when the reversal will occur the following Monday or the next working day.

Under the 2020 revised liquidity framework, 14-day VRR auctions are classified as primary liquidity tools, while shorter-term auctions are used for fine-tuning. These daily auctions provide temporary relief, with the amount determined based on RBI’s liquidity assessments and announced separately.

Market experts suggest that participants will likely bid at higher rates due to tight liquidity. While this measure addresses immediate needs, some believe durable solutions, like a potential 50-basis point cash reserve ratio cut, might be discussed in the upcoming policy meeting.

The banking system remains under significant liquidity pressure, with a core deficit nearing ₹1 trillion. Although this move creates a sense of assured liquidity, experts emphasize the need for long-term solutions to stabilize the financial system.