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RBI to Withdraw ₹1 Trillion from Banks Through 7-Day Reverse Repo to Control Excess Liquidity.

Banking & Finance | Dated: 25 Jun 2025

On 27 June 2025, the Reserve Bank of India (RBI) announced a 7-day Variable Rate Reverse Repo (VRRR) auction to absorb ₹1 trillion from the banking system. This move aims to reduce excess money in the system and align short-term interest rates with the RBI's policy rate.

🎯 Key Highlights:

  • - Banks currently have too much extra money, which can affect interest rates. The RBI is using this reverse repo auction to temporarily take back ₹1 trillion from the banking system and reduce the excess liquidity.
  • - In a reverse repo, RBI borrows money from banks for a few days and pays them interest. This helps RBI control the amount of money in the economy and keeps interest rates stable.
  • - After the announcement, the overnight lending rate (call rate) rose to 5.30%, and short-term treasury bill rates also increased. This helps bring market interest rates closer to the RBI’s main policy rate.

💡 Other Important Facts:

  • (i) Recently, RBI also cut the repo rate by 50 basis points and announced a cut in CRR (Cash Reserve Ratio) to support growth while managing liquidity levels. This reverse repo move complements those steps.
  • (ii) Banks with extra money can now park it safely with RBI and earn interest. This helps avoid risky lending and keeps the banking system healthy and more controlled.
  • (iii) RBI said it will use such short-term auctions when needed but won’t do long-term bond selling (OMO) unless there’s pressure on capital flows. This gives RBI flexibility to manage liquidity smartly.

📚 Test Your Knowledge:

Recently, the RBI announced the withdrawal of how much liquidity from the banking system through a 7-day Variable Rate Reverse Repo (VRRR)?

Correct Answer: ₹1 trillion

🚀 Quick Recap:

About RBI

  • Governor : Sanjay Malhotra
  • Headquarter : Mumbai