Money Market Operations as on August 12, 2026

On August 12, 2026, the Reserve Bank of India (RBI) conducted a significant liquidity absorption operation, withdrawing a net ₹2,14,886 crore from the banking system through its Liquidity Adjustment Facility (LAF). This operation reflects the RBI's active liquidity management under the flexible inflation targeting framework, mandated by the RBI Act, 1934 (as amended in 2016), which empowers the Monetary Policy Committee (MPC) to maintain price stability while keeping in mind the objective of growth. The MPC, constituted under Section 45ZB of the RBI Act, targets Consumer Price Index (CPI) inflation at 4% with a tolerance band of ±2%. The large-scale absorption via the Standing Deposit Facility (SDF) — ₹1,61,637 crore at 5.00% — and Variable Rate Reverse Repo (VRRR) — ₹53,845 crore at 5.24% — indicates persistent surplus liquidity in the banking system, likely driven by sustained capital inflows, government spending, and RBI's own forex interventions to manage rupee volatility. The SDF, introduced in April 2022 as a collateral-free absorption tool under Section 17 of the RBI Act, has become the primary instrument for draining excess liquidity, replacing the earlier fixed-rate reverse repo. Its rate (5.00%) forms the floor of the LAF corridor, with the Marginal Standing Facility (MSF) at 5.50% as the ceiling. On this day, banks parked ₹1,61,637 crore in SDF — a massive amount — signalling abundant liquidity and low credit offtake relative to deposits. The MSF saw minimal usage (₹596 crore at 5.50%), confirming no acute funding stress. The overnight weighted average call money rate (5.06%) traded close to the SDF rate, confirming effective transmission of the policy corridor. The overnight money market volume reached ₹5,95,010 crore, with Triparty Repo dominating at ₹3,97,202 crore (66.7%) at 5.04%. This segment, operated by CCIL, provides secured short-term funding using government securities as collateral, enhancing financial stability. The Market Repo (₹1,75,615 crore) and Call Money (₹15,175 crore) completed the picture. The Term segment remained thin, with only ₹2,416 crore across Notice Money, Term Money, and Term Repos, reflecting banks' preference for overnight parking amid uncertainty. This liquidity overhang has macroeconomic implications. Persistent surplus liquidity can weaken monetary transmission, delay rate hikes, and fuel asset price inflation. However, it also supports government borrowing at lower yields. The RBI may continue VRRR auctions of longer tenors (14-day, 28-day) to align liquidity with the policy stance. Under Article 110 of the Constitution, the Union Budget's fiscal deficit trajectory directly impacts liquidity — higher deficits inject liquidity unless sterilised. The RBI's autonomy in liquidity management, reinforced by the 2016 MPC framework, ensures insulation from political cycles. Going forward, if surplus liquidity persists, the RBI may consider incremental CRR hikes or Open Market Operations (OMO) sales of government securities. The MPC's stance — currently 'withdrawal of accommodation' — will guide the pace. Aspirants must track the interplay between fiscal policy (Centre's borrowing), external flows (FPI/FDI), and RBI's balance sheet operations. This episode exemplifies how modern central banking in India combines statutory mandate, operational independence, and market-based instruments to maintain financial stability — a core theme in Indian Economy for UPSC, RBI Grade B, and Banking exams.