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LoansJagat Team
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5 Min
26 Jun 2025
RBI slashes repo rates by 50 bps on June 6, 2025, is urging the banks to cut their interest rates fast, however is eyeing at absorbing excess liquidity from the market
Earlier in June 2025, the Reserve Bank of India (RBI) reduced the repo rate by 50 basis points (0.50%), making loans cheaper and encouraging spending and investment. This move was meant to push more money into the economy and support growth.
But now, the RBI is making a surprising move, it wants to take some of that extra money out of the banking system, at least for a short time. To do this, it has announced a ₹1 lakh crore VRRR auction.
RBI last conducted a Variable Rate Reverse Repo (VRRR) auction on November 29, 2024.
So, the auction failed to meet its target, which made RBI cautious about trying again—until now.
What is VRRR?
VRRR stands for Variable Rate Reverse Repo. It’s a tool used by the RBI to manage liquidity, or in simpler terms, to control how much money is floating around in the banking system.
Why does RBI do this?
If there’s too much money in the system, banks may start giving out loans more freely—even to risky borrowers. This can lead to problems like high inflation or bad loans.
So, VRRR helps soak up extra money, reduce reckless lending, and maintain economic balance.
How long does VRRR last?
Usually, VRRR is conducted for 7 days or 14 days. RBI decides the duration based on the current economic needs.
RBI has issued detailed information for the upcoming VRRR auction.
Detail | Description |
Date of Auction | June 28, 2025 (Friday) |
Amount to be Absorbed | ₹1,00,000 crore (1 lakh crore) |
Duration | 7 days (money will return to banks after a week) |
Rate of Interest | Will be determined through bidding, expected to be close to 5.50%, which is the current repo rate |
Bidding Window | Likely between 10:00 AM and 10:30 AM |
Return Date | Around July 5, 2025, depending on the final duration |
Objective | To remove excess money from banks temporarily and control short-term interest rates |
This auction is different from the regular Standing Deposit Facility (SDF), where banks currently park extra money at a lower rate of 5.25%. With VRRR, RBI will offer a slightly higher return (5.50%), which will attract more banks to participate.
Right now, banks are sitting on about ₹2.5 lakh crore in extra cash. This money is being parked with the RBI at the SDF rate of 5.25%.
With the VRRR auction, RBI is trying to absorb ₹1 lakh crore, which is nearly half of this surplus. It will offer a slightly higher rate of return (closer to 5.50%), making it more attractive for banks to lock in their funds.
But this move also raises questions:
By increasing short-term borrowing costs, RBI may be trying to strike a balance—boost the economy when needed, but also pull back when there’s too much liquidity.
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