The Reserve Bank of India has scheduled a 30-day Variable Rate Reverse Repo auction with a notified amount of ₹7 lakh crore to absorb the durable liquidity surplus in the banking system. Unlike overnight or short-term reverse repos, this longer-tenor instrument signals RBI's intent to lock up excess liquidity for a sustained period, preventing it from exerting downward pressure on short-term money market rates below the policy corridor floor.

The VRRR is the RBI's primary tool for absorbing surplus liquidity under the Liquidity Adjustment Facility (LAF). Under the current LAF corridor, the Standing Deposit Facility (SDF) rate forms the floor and the Marginal Standing Facility (MSF) rate forms the ceiling, with the repo rate as the policy rate in between. When system liquidity is in large surplus, overnight rates in the call money and TREPS markets tend to gravitate toward the SDF floor rather than the repo rate, effectively easing monetary conditions beyond what the MPC intends.

A 30-day VRRR addresses this by absorbing surplus funds for a longer tenor, reducing the stock of free-floating liquidity available to banks on a day-to-day basis. This keeps the weighted average call rate (WACR) — RBI's operating target — anchored closer to the repo rate rather than drifting toward the SDF floor.

The 'variable rate' aspect means banks competitively bid the rate at which they park funds with RBI; RBI accepts bids at or above the SDF rate. This is distinct from a fixed rate reverse repo, where RBI sets the rate unilaterally. The 30-day tenor (versus the 3- or 14-day VRRR used routinely) signals that RBI views the surplus as durable — structural, not transient — requiring longer-duration sterilisation. This tool sits within the broader framework of liquidity management operations (LMOs) and complements open market operations (OMOs) and forex swap auctions as sterilisation instruments.