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Banks parked just Rs 79,655 crore in the central bank’s 29-day variable rate reverse repo (VRRR) auction, less than half the Rs 2 lakh crore absorption planned in the offer. Draining liquidity is considered crucial for quicker and effective transmission of increases in policy rates. The weak response to the long-term VRRR came despite the Reserve Bank of India (RBI) allowing banks to withdraw funds on a two-day notice. The RBI had said while announcing its latest policy review that it would use various liquidity-management tools to improve transmission of the rate hike. Also read | One GST return a year? New scheme could ease compliance for 16 lakh small businesses "Banks with visibility of 30 days of surplus liquidity participated in the 29-day VRRR. Although RBI offers the call option, several banks do not take part in long term VRRR as the RBI offers the daily VRRR option," a treasury head with a private sector bank said. The RBI absorbed Rs 1.61 lakh crore Thursday using the daily VRRR against a notified amount of Rs 2 lakh. Governor Sanjay Malhotra Wednesday said that the surplus liquidity is expected to drain out by the end of the current fiscal. He said that the central bank would use an appropriate mix of liquidity management tools and strive to align the weighted average call rate (WACR) with the policy repo rate. To be sure, the central bank also said it expects credit offtake to remain robust and the festive season should help drain excess liquidity. The inter-bank market was sitting on Rs 4.24 lakh crore of surplus at the end of October 7, RBI data showed. Also read | GST Council Meeting 2026: Tax officers' arrest powers scrapped, prosecution threshold raised to Rs 5 crore; no rate changes Although monetary transmission happens automatically for the repo-linked loans, marginal cost-based pricing takes a little time to adjust to the new policy rate. Deposit rates, on the other hand, are not expected to rise immediately since banks have enough lendable resources at present backed by the foreign-currency linked deposit cushion. During August and September, system liquidity increased substantially on account of the RBI's dedicated dollar mobilisation programme, which was followed up by a dollar-rupee swap. The system liquidity stood at an average daily surplus of Rs 5.9 lakh crore since early August 2026, RBI said. (What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price (What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price
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