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RBI mops up Rs 6 lakh crore surplus liquidity through two auctions
Why in News?
RBI mops up Rs 6 lakh crore surplus liquidity through two auctions
The RBI absorbed about Rs 6 lakh crore of surplus banking-system liquidity through two Variable Rate Reverse Repo auctions with a mixed response.
Why it matters: factual, Prelims-type
What you need to know
2 min read
The Reserve Bank of India absorbed about Rs 6 lakh crore of surplus liquidity from the banking system through two Variable Rate Reverse Repo (VRRR) auctions, though response from banks was mixed.
Surplus liquidity, if left unabsorbed, can push short-term interest rates below the RBI's policy repo rate and complicate monetary transmission.
VRRR auctions are one of the RBI's key liquidity management tools, alongside the Standing Deposit Facility and open market operations.
Sources: Topper IAS editorial (PIB / The Hindu / Indian Express)
Key facts
Remember these
- Variable Rate Reverse Repo
- RBI liquidity management
- Standing Deposit Facility
- monetary transmission
Prelims · Mains
How the exam will ask it
Prelims
- Variable Rate Reverse Repo, RBI liquidity management, Standing Deposit Facility, monetary transmission
Mains
Use as an example in GA answers (GS3 - Economy: monetary policy tools, RBI liquidity operations).
Quick recall
Answer before you reveal
Which instrument did the Reserve Bank of India use to absorb about Rs 6 lakh crore of surplus liquidity from the banking system in the two recent auctions?
- Marginal Standing Facility
- Variable Rate Reverse Repo
- Open Market Operations (purchase)
- Cash Reserve Ratio hike
Show answer
Answer: B — The RBI absorbed the surplus liquidity through Variable Rate Reverse Repo (VRRR) auctions, a key short-term liquidity management tool distinct from the Marginal Standing Facility, which is used by banks to borrow from the RBI.
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