RBI Repo Rate Auction: Here's What It Means | EXPLAINED
RBI Variable Repo Rate Auction: The Variable Repo Rate (VRR) auction is usually undertaken to withdraw excess liquidity from the system. It is done to tackle inflation. A reverse repo is a fixed or variable interest rate at which banks lend to RBI.
Updated Mar 10, 2023 | 10:25 AM IST
RBI to hold 14-day Repo Rate auction (Representational Image)
What is Variable Repo Rate Auction And Why is It Done?
The Variable Repo Rate (VRR) auction is usually undertaken to withdraw excess liquidity from the system. It is done to tackle inflation. A reverse repo is a fixed or variable interest rate at which banks lend to RBI .Operational Guidelines For VRR Auction
- The auction will be conducted on CBS (e-Kuber) platform.
- The minimum bid amount for the auction would be Rupees one crore and multiples thereof. The allotment would be in multiples of Rupees one crore.
- Banks would be required to place their bids in percentage terms up to two decimal places. Banks can place multiple bids.
- Successful bids will get accepted at their respective bid rates.
- Bids at or below the repo rate will be rejected.
- Once the bidding time is over, all the bids would be arranged in descending order of the rates quoted and the cut-off rate would arrive at the rate corresponding to the notified amount of the auction. Successful bidders would be those who have placed their bids at or above the cut-off rate. All bids lower than the cut-off rate would be rejected.
- There will be the provision of pro-rata allotment should there be more than one successful bid at the cut-off rate.
- RBI will, however, reserve the right to (i) inject a marginally higher amount than the notified amount due to rounding effects and (ii) inject less than the notified amount without assigning any reasons therefor.
- The reversal of the above auction would take place at the ‘start of day’ on the date of reversal.
- The eligible collateral and the applicable haircuts will remain the same as for LAF.
- All other terms and conditions as applicable to LAF operations will also be made applicable to the above auction mutatis mutandis. These conditions will, however, be subject to review on a periodic basis.
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