Reserve Bank of India (RBI) has announced that it will conduct a 14-day Variable Rate Reverse Repo (VRRR) auction on November 17, 2023. The auction will involve a substantial amount of Rs 50,000 crore, marking a significant move in the country’s monetary policy.

The VRRR is a part of the RBI’s liquidity adjustment facility (LAF) and serves as a tool to manage banking system liquidity. Banks with surplus funds can deposit their excess liquidity with the RBI through this mechanism, earning interest in return.

The decision to conduct a 14-day VRRR of such magnitude is seen as a strategic move by the RBI. It reflects the central bank’s ongoing efforts to normalize the exceptional liquidity measures that were put in place during the COVID-19 pandemic.

The auction will be conducted using the multiple price method. This means that successful bidders will get the allotment at their respective bid rates. The RBI will accept bids between 10:00 AM and 10:30 AM on November 17. The result of the auction will be announced on the same day.

This move is expected to have a significant impact on the country’s banking sector and overall economy. It will help in better liquidity management and ensure stable and low-cost funding for banks. Moreover, it will also aid in maintaining financial stability in the system.

The RBI’s decision to conduct the VRRR auction is in line with its commitment to ensure a smooth transition from accommodative to neutral liquidity conditions. It is a part of the central bank’s phased normalization process, which aims to gradually restore the liquidity operations to pre-pandemic levels.

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