RBI infuses ₹1.41 lakh crore to ease liquidity crunch in banking system

On Tuesday, the Reserve Bank of India (RBI) infused more than Rs 1.41 lakh crore of short-term liquidity into the banking system via a seven‑day variable‑rate repo (VRR) auction.

The liquidity was supplied at a cut‑off and weighted‑average rate of 5.26 %, as shown in the RBI’s released data.

This action followed a shift in banking‑system liquidity from a surplus of Rs 30,685.11 crore on June 21 to a deficit of Rs 19,971.89 crore on June 22.

Analysts attributed the liquidity squeeze to GST‑related outflows from banks.

The liquidity drop pressured overnight rates, pushing the weighted average call money rate to 5.43 %, 0.18 percentage points above the RBI’s repo rate.

When liquidity tightens sharply because of GST outflows, short‑term rates such as the weighted average call money rate can exceed the RBI’s repo rate. By injecting liquidity, the central bank eases funding pressures and keeps credit flowing smoothly, avoiding a slowdown.

The RBI regularly supplies both temporary and long‑term liquidity to counter shortfalls stemming from tax outflows, advance tax payments, or seasonal credit demand, using a range of monetary tools and market operations.

The central bank often runs VRR auctions with tenors of three or seven days to inject significant temporary liquidity. Banks pledge eligible government securities as collateral to borrow directly from the RBI, gaining immediate relief when liquidity turns negative.

For lasting liquidity, the RBI buys government securities on the secondary market, permanently boosting cash in the banking system and helping banks satisfy their CRR obligations.

The RBI can also run USD‑INR swap auctions, for instance buying dollars from banks for rupees, which raises rupee liquidity and curbs spikes in overnight rates.