RBI Infuses Rs 25,000 Crore into System Liquidity via Variable Repo Rate (VRR) Route.

Banking & Finance

On 22nd November 2024, the Reserve Bank of India (RBI) infused funds worth Rs 25,000 crore through a Variable Repo Rate (VRR) into the banking system as the weighted average call rate, a parameter for short-term borrowing costs, increased by 23 basis points (bps) above the policy repo rate (6.50%) to 6.73%.


      - This move aims to ensure that recent overseas outflows from local debt and equity do not drive up banks' cost of funds. • This marked the second such auction that the RBI has conducted after changing its stance from withdrawal of accommodation to neutral.

      - As per RBI data, surplus liquidity, as measured by absorption of funds by the RBI, has declined to a one-month low of Rs 84,154.75 crore.

      - RBI aims to keep liquidity surplus at roughly 1% to 1.2% of Net Demand and Time Liabilities (NDTL) to ensure that the call rates do not move away from the repo rate.

Main Points:-   (i) As of November 2024, RBI received bids worth Rs 35,420 crore from banks against the notified amount of Rs 25,000 crore, reflecting the need for funds, while the Indian Rupee (INR) depreciated by nearly 0.5% to Rs 84.45 against 1 USD, and foreign investors sold USD 4 billion from Indian stocks and bonds.

      (ii) VRR: It acts as a means to infuse short-term liquidity into the banking system. It is a process through which RBI allows banks to borrow at a rate determined by the market, generally lower than the Repo rate, for a maximum period of 14 days.

(iii) Repo rate: It is the rate at which RBI lends money to commercial banks in the event of any shortfall of funds. It is an important part of RBI's monetary policy to keep inflation under control.
About RBI

CEO : Shaktikanta Das
Headquarter : Mumbai
          ____________________________