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

Banking & Finance

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.


      - 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.

Main Point :-   (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.
About RBI

Governor : Sanjay Malhotra
Headquarter : Mumbai
          ____________________________