RBI Shifts Liquidity Strategy: OMO Pause, Focus on VRR Auctions

• RBI is expected to pause additional Open Market Operation (OMO) purchases this month, shifting focus to Variable Rate Repo (VRR) auctions for liquidity management.
• The central bank has already provided Rs 1.50 lakh crore via OMOs/USD-INR swaps and Rs 2.60 lakh crore through VRR auctions this month.
• VRR operations offer flexibility for short-term liquidity mismatches, while OMOs are for durable liquidity.
• Experts anticipate more VRR auctions to manage the current systemic liquidity deficit of Rs 68,586.12 crore, which is seen as transitional.
• Additional OMO purchases are more likely in Q4FY26 (Jan-Mar) when liquidity typically tightens due to tax outflows and credit demand.

Why It Matters: RBI to prioritize flexible VRR auctions over OMOs for current liquidity needs, reserving OMOs for Q4FY26.