Variable Reverse Repo Rate (VRRR)

Most experts expect the monetary policy to tighten in the coming months. Longer-term VRRR auctions are being seen as an exit route from the unconventional monetary easing, which was used to support the economy during Covid lockdowns. What Is VRRR? The central bank uses various ways to increase or decrease liquidity in the banking system. Repo rate is the rate at which the central bank gives loans to commercial banks against government securities. Reverse repo rate is the interest that RBI pays to banks for the funds. VRRR is a sub-type of reverse repo Since January 2021, RBI had been absorbing money from the banking system via VRRR auctions. But the frequency was increased to 14 days in August 2021 In December, the central bank announced that it may use longer-term VRRRs, but the size and maturity details were not announced RBI has indicated that it will use VRRR auctions as the main...