VRRR Auction: RBI Drains ₹1.5 Trillion Liquidity
Why in the news
The central bank lined up an eight-day VRRR auction on a Thursday to pull ₹1.5 trillion out of the system.
What is VRRR
- Banks place idle money with RBI for a fixed term, such as 7 or 14 days.
- The rate is discovered by auction.
- Aims: manage liquidity, restrain inflation, keep short rates near repo.
| Basis | VRR | VRRR |
|---|---|---|
| Purpose | Inject liquidity | Absorb liquidity |
| Money moves | RBI to banks | Banks to RBI |
| Security | Banks pledge G-secs | Banks place surplus cash |
Impact
- Banks: less short-term lending cash; call money and TREPS rates may rise towards repo.
- Economy: eases inflation pressure; borrowing slightly dearer for corporates and NBFCs.
- Investors: better yields on CPs, CDs, T-bills; bonds may face pressure.
Exam angle
- VRRR absorbs; VRR injects.
- Related: TREPS, call money rate.