VRRR Auction: RBI’s ₹1 Trillion Liquidity Absorption Tool
Why in the news
RBI scheduled a seven-day VRRR auction of ₹1 trillion to soak up excess banking liquidity, which had dragged the call money rate under the policy repo rate.
Key facts
- VRRR: banks park surplus funds with RBI through an auction.
- Rate: set by competitive bidding in the market.
- Use: deployed during a liquidity glut, helping check inflation and keep money markets stable.
| Tool | Aim | Liquidity effect |
|---|---|---|
| VRR | Supplies cash to banks | Increases liquidity |
| VRRR | Draws surplus cash back | Reduces liquidity |
Exam angle
- Tenor in this auction: seven days; size: ₹1 trillion.
- Policy repo rate then: 5.50%.