RBI moves to drain Rs 5 trillion as rupee slips past 95 and oil tops $100
The Reserve Bank of India is stepping up its liquidity management as the rupee weakens under the weight of $100-plus crude. The central bank announced it will conduct a 26-day variable rate reverse repo (VRRR) auction for Rs 5,00,000 crore on Friday, 11 September, to absorb surplus cash from the banking system, according to the RBI press release (2026-2027/1092) summarised by BestCurrentAffairs and a report in Business Standard.
The funds parked with the RBI will be reversed on Wednesday, 7 October. Banks may also seek premature reversal by giving at least two working days' notice through the E-Kuber portal, the press release said.
Why the RBI is mopping up cash
Business Standard reported that the 26-day auction follows a 30-day VRRR for Rs 7 trillion that drew bids of only Rs 2.59 trillion, and a Rs 5 trillion overnight VRRR that saw stronger demand of Rs 3.53 trillion. The central bank has also run overnight VRRR auctions on 9 and 10 September, per RBI notices.
The Business Recorder reported that the RBI has been tapping swaps to drain excess rupee liquidity while it sells dollars in the spot market to slow the currency's slide. Together, the two operations are aimed at keeping short-term rates from drifting below the policy rate at a time when the rupee needs support.
Rupee under pressure
The rupee breached the 95-per-dollar mark on Tuesday, 9 September, for the first time in about two weeks, touching a low of 95.23 before settling at 95.11, Business Standard reported. On Wednesday, it opened 25 paise weaker at 95.33 as Brent crude crossed $100 a barrel, according to the same publication. By Friday's close, the unit had slipped further to 95.55, a fourth consecutive session of losses and a weekly fall of more than 1 per cent, 5paisa's market wrap said.
A dealer at a state-owned bank told Business Standard that RBI intervention had been keeping the rupee above 95, "but now the scale of intervention has reduced given crude has been inching up." Three forces are working against the currency at once: surging oil prices, persistent foreign equity outflows and steady dollar demand from importers.
What this means for borrowers and markets
For banks, a large multi-week VRRR reduces the cash they can lend in the call money market, nudging overnight rates closer to the repo rate. That is intended to tighten conditions at the margin without an outright policy rate hike. For the rupee, a firmer domestic rate environment makes carrying dollar positions slightly more expensive, which the RBI hopes will discourage speculative bets.
Equity markets have felt the squeeze. The Nifty 50 fell for a fifth straight week, closing at 23,398.10 on Friday, with foreign institutional investors net sellers of Rs 438.24 crore on Thursday, according to exchange data cited by India TV News.
What happens next
The outcome of Friday's Rs 5 trillion auction, and how much banks actually bid, will indicate whether the RBI needs additional longer-tenor operations before the 7 October reversal. Markets will also watch the crude oil trajectory closely: as long as Brent stays above $100, dealers quoted in the reports expect the central bank to keep both its dollar sales and liquidity tools active.