MUMBAI — The Reserve Bank of India (RBI) has released the result of the Second 4-day Variable Rate Repo (VRR) auction, a liquidity management tool used to control the money available in the banking system.
In simple terms, this auction is a way for RBI to take extra money (liquidity) out of the system temporarily so that interest rates remain stable and inflation is controlled.
Key Results at a Glance (VRR Auction – Dec 26, 2025)
| Particulars | Details |
|---|---|
| Tenor | 4-day |
| Notified Amount | ₹50,000 crore |
| Total Bids Received | ₹28,007 crore |
| Amount Allotted | ₹28,007 crore |
| Cut-off Rate | 5.26% |
| Weighted Average Rate | 5.26% |
| Partial Allotment at Cut-off | NA |
What Happened in This Auction? (Simple Explanation)
✅ RBI planned to absorb up to ₹50,000 crore from banks for 4 days.
✅ But banks offered only ₹28,007 crore in total bids.
✅ RBI accepted the full amount offered (₹28,007 crore) — meaning the auction was not fully subscribed.
✅ The interest rate (cost for banks) remained fixed at 5.26%.
Why Did RBI Conduct This Auction?
RBI uses VRR auctions to manage surplus liquidity in the banking system.
When there is too much money in banks:
- Banks may lend aggressively
- Borrowing becomes cheaper
- Spending rises
- Inflation may increase
So RBI absorbs extra funds for a short period to maintain balance.
What Does 5.26% Rate Indicate?
The cut-off rate of 5.26% tells us the interest rate at which RBI accepted bids. Since both cut-off and weighted average rate are same, it indicates that the auction cleared at a single uniform rate, showing stable demand and predictable market conditions.
Why Were Only ₹28,007 Crore Bids Received Against ₹50,000 Crore?
This could indicate:
- Banks may not have excess funds to park with RBI right now.
- Banks may prefer lending in the market if returns are better.
- Liquidity may already be tightening due to government spending or credit growth.
In simple words: RBI wanted to absorb more cash, but banks had less extra cash to give.
How Does This Impact Common People?
Although this is a banking operation, it affects you indirectly:
✅ 1. Loan Interest Rates
If RBI keeps absorbing liquidity frequently, banks might have less money, and loan interest rates may not fall quickly.
✅ 2. Inflation Control
Less surplus money means spending pressure reduces, helping to control inflation over time.
✅ 3. Bank Deposit Rates
If liquidity tightens further, banks may offer slightly higher deposit interest rates to attract funds.
