Print Friendly, PDF & Email

Variable Rate Repo (VRR)

Facts for Prelims (FFP)

 Context: The Reserve Bank of India’s (RBI) variable rate repo (VRR) auction attracted significant interest from banks, with bids totalling ₹1,13,915 crore, surpassing the RBI’s offer of ₹50,000 crore.

This underscores the growing demand for liquidity in the banking sector amid an estimated deficit of around ₹1.54-lakh crore.

 

What is VRR, or Variable Rate Repo? 

It is a mechanism where the RBI permits banks to borrow funds at rates determined by the market, differing from the fixed Repo Rate at which banks borrow directly from the RBI.

Typically lasting up to 14 days, VRR serves as a means to inject short-term liquidity into the banking system. Conversely, Variable Rate Reverse Repo (VRRR) is employed to absorb surplus liquidity from the system.

Source: Hindu BL