The Reserve Bank of India (RBI) conducted a 14-day Variable Rate Reverse Repo (VRRR) auction on 24 February 2023 for the notified amount of Rs.50,000 crore. The auction was held between 10:30 am to 11:00 am. The reversal of the funds will take place on 10 March 2023.
What is a variable rate reverse repo?
The rate at which the RBI issues loans to commercial banks when there is a shortage of funds is the repo rate. It helps to control inflation. The reverse repo is the variable or fixed interest rate banks lend to the RBI. The variable rate reverse repo (VRRR) is the subdivision of reverse repo.
The VRRR auction is undertaken to reduce surplus liquidity in the system by withdrawing existing cash. Currently, the liquidity in the banking system is in surplus of about Rs.48,802.08 crore.
The RBI Governor Shaktikanta Das stated that the overall liquidity is in excess, with average daily absorption under the Liquidity Adjustment Facility (LAF) rising to Rs.1.6 lakh crore in the December-January from the average of Rs.1.4 lakh crore in October-November. The LAF permits banks to borrow funds through repo and lend money to the RBI through reverse repo agreements.
VRRR auction results
The RBI conducted the auction on the CBS (e-Kuber) platform. It accepted the successful bids at their respective bid rates. After the bidding time, the RBI arranged all the bids in ascending order of the quoted rates and arrived at the cut-off rate.
The total offer amount received was Rs.12,752 crore, and the RBI accepted all the offers. The RBI fixed the cut-off rate and weighted average rate at 6.49%.
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