RBI 43-Day VRR Auction Draws Weak Demand
Why in the news
A 43-day VRR auction by the RBI in April 2025 saw very weak participation, a sign of easy liquidity and falling short-term rates.
Key facts
- Bids: ₹25,431 crore versus a notified amount of ₹1.5 trillion.
- Reason: money market rates dipped below 6%; paying 6.01% in the VRR looked poor when overnight rates were around 5.80%.
- Surplus liquidity: ₹1.69 trillion as of April 16, 2025.
- RBI infusion so far in 2025: ₹3.3 trillion via OMO and ₹2.2 trillion via long-term VRR auctions.
| Item | Detail |
|---|---|
| VRR tenor | 43 days |
| Notified amount | ₹1.5 trillion |
| Bids received | ₹25,431 crore |
| VRR rate vs overnight rate | 6.01% vs 5.80% |
| OMO purchase in the same period | ₹40,000 crore of government securities |
OMO auction
- Cutoff came above the market price, as dealers expected no more OMO auctions after the RBI dividend arrives, prompting first-quarter profit booking.
- Dealers saw the auctions as a chance to profit given expected smaller RBI interventions.
Bond market
- The benchmark 10-year yield hit its lowest since December 15, 2021.
- Traders expected it to ease to 6.25% by quarter-end.
- Private banks led buying, expecting more rate cuts after the 25 bps repo cut and the switch to an accommodative stance.
Exam angle
- Instrument: Variable Rate Repo, used to manage liquidity.
- Terms: OMO, surplus liquidity, accommodative stance, basis points.
- Remember: bids ₹25,431 crore versus ₹1.5 trillion notified.