RBI to conduct 14-day variable rate reverse repo today

The variable rate reverse repo is usually used to remove excess liquidity from the system.

Today, February 24, the Reserve Bank of India (RBI) will hold a 14-day variable rate reverse repo (VRRR) auction for a stated sum of 50,000 crore. The auction will take place between 10:30 a.m. and 11:00 a.m., according to a press statement from the central bank.

The reverse of this money will occur on March 10.

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Why is a variable rate reverse repo (VRRR) auction undertaken?

The VRRR is typically used to remove excess liquidity from the system.

In the monetary policy minutes issued on February 22, RBI Governor Shaktikanta Das stated that total liquidity continues to be in surplus, with average daily absorption under the LAF growing to 1.6 lakh crore in December-January from 1.4 lakh crore in October-November.

Operational guidelines for the auction

1) The auction will take place on the CBS (e-Kuber) platform.

2) The auction’s minimum bid amount would be one crore and multiples thereof. The allocation would be in multiples of one crore rupees.

3) Banks would have to submit bids in percentage terms to two decimal places. Banks have the ability to submit several bids.

4) Winning offers will be accepted at the bid rates specified.

5) Bids equal to or greater than the repo rate will be refused.

6) Once the bidding period has ended, all bids will be organised in ascending order of the rates offered, and the cut-off rate will be the rate corresponding to the auction’s announced amount. Those who put in bids at or below the cut-off rate would be considered successful bidders. Any offers that were greater than the cut-off rate were rejected.

7) There will be a provision for pro-rata allocation if more than one successful offer at the cut-off rate is received.

Nevertheless, the RBI reserves the right to absorb (i) a marginally greater amount than the informed amount due to rounding effects and (ii) a lower amount than the notified amount without assigning any reasons.

9) The aforesaid auction would be reversed at the “start of day” on the reversed date.

10) The qualifying collateral and haircuts shall stay the same as in LAF.