The Reserve Bank of India (RBI) has announced a variable rate reverse repo auction to withdraw ₹2 trillion ($21.58 billion) in liquidity from the banking system over seven days. This decision comes after the banking system's liquidity surplus rose to a near four-year high of ₹4.5 trillion, or 1.8% of banks' deposits. Following the announcement, bond yields increased by 3-5 basis points, briefly touching the 7% mark, while overnight index swap rates rose by 7-10 basis points. Analysts noted that this move indicates the RBI's intent to absorb surplus liquidity and align short-term rates closer to the policy rate. The choice of a seven-day absorption period suggests the RBI perceives the current liquidity surplus as sustainable rather than temporary. The RBI had previously maintained interest rates and signaled a preference for liquidity levels between 0.6% to 1.1% of deposits to keep the weighted average call rate (WACR) within a desirable range.