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RBI absorbs liquidity through two VRRR auctions on 4 November
ଖବରରେ କାହିଁକି?
₹73,907 crore offered, only ₹50,015 crore taken: the VRRR liquidity tool GS3 monetary policy tests
RBI drains surplus liquidity via VRRR auctions at a 5.49% cut-off.
Why it matters: factual, Prelims-type
What you need to know
2 ମିନିଟ
The Reserve Bank held two overnight Variable Rate Reverse Repo auctions under the Liquidity Adjustment Facility on 4 November.
In the first, offers of ₹73,907 crore were received against ₹50,000 crore notified and ₹50,015 crore was accepted at a 5.49% cut-off.
A further auction was announced for 5 November.
ଉତ୍ସ: Topper IAS editorial (PIB / The Hindu / Indian Express)
ମୁଖ୍ୟ ତଥ୍ୟ
Remember these
- VRRR (Variable Rate Reverse Repo) is an auction-based LAF tool where the RBI borrows from banks to absorb surplus liquidity.
- On 4 November the RBI held two overnight VRRR auctions; in the first, offers of ₹73,907 crore came against ₹50,000 crore notified.
- The RBI accepted ₹50,015 crore at a cut-off rate of 5.49%.
- A further auction was announced for 5 November.
- Repo injects liquidity into the system; reverse repo withdraws it.
ପ୍ରିଲିମ୍ସ · ମେନ୍ସ
How the exam will ask it
ପ୍ରିଲିମ୍ସ
- Statement: In a reverse repo operation under the LAF, the RBI borrows money from banks against government securities, thereby absorbing liquidity.
- Statement: VRRR auctions have a variable rate determined by the auction cut-off, unlike the fixed-rate reverse repo.
- Statement: Liquidity absorption through VRRR is a tool of the RBI's liquidity management, distinct from changes in the Cash Reserve Ratio.
ମେନ୍ସ
GS3 (Economy: Monetary policy). Surplus banking liquidity can weaken transmission of the policy repo rate, so the RBI uses LAF tools such as VRRR to absorb it at market-determined rates. Effective liquidity management keeps short-term rates aligned with the policy rate and supports inflation targeting; the way forward is calibrated, transparent operations that balance liquidity against credit growth.
Quick recall
Answer before you reveal
A Variable Rate Reverse Repo (VRRR) auction under the Liquidity Adjustment Facility is conducted by the RBI to:
- Inject liquidity into the banking system against government securities
- Raise the Cash Reserve Ratio of scheduled banks
- Buy government securities outright from the open market
- Absorb surplus liquidity from banks for a short tenor
ଉତ୍ତର ଦେଖନ୍ତୁ
ଉତ୍ତର: D — Correct: Absorb surplus liquidity from banks for a short tenor — In a reverse repo the RBI borrows from banks, taking surplus liquidity out of the system for the tenor. • Inject liquidity into the banking system against government securities — wrong: Injecting liquidity against securities is done through repo operations, the opposite of reverse repo. • Raise the Cash Reserve Ratio of scheduled banks — wrong: CRR changes are separate policy decisions and are not done through auctions. • Buy government securities outright from the open market — wrong: Outright purchases of securities are open market operations, not LAF reverse repo.
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