Daily News Analysis

Variable Rate Repo (VRR)

stylish_lining

The Variable Rate Repo (VRR) is a monetary policy tool used by the Reserve Bank of India (RBI) to manage short-term liquidity in the banking system. Here's a detailed overview:

About VRR

Purpose:

  • Infuse Liquidity: The VRR mechanism is employed when the RBI wants to inject liquidity into the banking system, particularly when banks are hesitant to borrow at the fixed Repo Rate due to prevailing lower interest rates in the economy.

Mechanism:

  • Interest Rate: The interest rate for borrowing under the VRR is determined by the market and is generally lower than the standard Repo Rate, but not below the Reverse Repo Rate.
  • Duration: Borrowing through VRR typically spans more than one day and can extend up to 14 days. This flexibility allows banks to address liquidity needs over a slightly longer period compared to the overnight Repo Rate.

Function:

  • Short-term Liquidity: VRR serves as a tool for injecting short-term liquidity into the banking system. By offering a more market-driven interest rate, it encourages banks to avail themselves of the funds when they might otherwise be disinclined to do so.

Comparison with Variable Rate Reverse Repo (VRRR)

Purpose:

  • Absorb Excess Liquidity: In contrast to VRR, the Variable Rate Reverse Repo (VRRR) is used to absorb excess liquidity from the system. This is employed when there is a surplus of funds in the banking system that needs to be withdrawn to maintain balance and control inflation.

Mechanism:

  • Interest Rate: The VRRR is similarly conducted at a variable rate, which is determined based on the market conditions but is usually higher than the standard Reverse Repo Rate.

Function:

  • Liquidity Management: By offering a variable rate, VRRR helps manage the amount of liquidity in the system by encouraging banks to park excess funds with the RBI.

Summary

  • VRR is used to inject liquidity into the banking system for durations of more than one day, with rates determined by market conditions.
  • VRRR is used to absorb excess liquidity, with rates also determined by market conditions but typically higher than the Reverse Repo Rate.

These tools are essential for the RBI in managing short-term liquidity and ensuring stable monetary conditions in the economy.

Women in Armed Forces

The first-ever batch of 17 female cadets graduated from the National Defence Academy (NDA), marking a historic step toward greater gender inclusion in India's armed forces. Significance of
Share It

Global Tobacco Epidemic 2025

The World Health Organization (WHO) has released its tenth report on the Global Tobacco Epidemic 2025, highlighting the progress made in reducing tobacco use globally and pointing out areas that s
Share It

Special Rupee Vostro Accounts (SRVAs)

SRVAs are accounts opened by foreign entities with Indian banks that allow international trade transactions to be settled in Indian Rupees (INR) rather than traditional global currencies like the
Share It

WTO in Shaping Global Trade Dynamics

The World Trade Organization (WTO) plays a pivotal role in shaping the global trade environment by providing a multilateral platform for negotiating and enforcing trade agreements, ensuring that i
Share It

Quality Council of India (QCI)

Recently, the National Accreditation Board for Testing and Calibration Laboratories (NABL), a constituent body of the Quality Council of India (QCI), launched its new Medical Application Portal.
Share It

Cultural Appropriation

Cultural appropriation refers to the adoption of elements from one culture by members of another, often in ways that exploit, disrespect, or commodify the original culture. This becomes particular
Share It

Cultural Capital and Its Significance in India

Cultural capital refers to the non-economic assets such as education, knowledge, and cultural practices that contribute to social mobility. It was coined by French sociologist Pierre Bourdieu to e
Share It

QS World University Rankings 2026

India’s higher education system has shown significant improvement in the QS World University Rankings 2026, with a notable increase in the number of Indian universities ranked globally Ab
Share It

India's Semiconductor Market

India’s semiconductor industry is witnessing rapid growth and is expected to continue its upward trajectory, driven by several key trends and emerging opportunities. Market Size and Growth
Share It

Cess

A cess is an additional tax imposed by the Government of India for a specific purpose, as authorized under Article 270 of the Indian Constitution. It is levied on top of existing taxes or duties l
Share It

Newsletter Subscription


ACQ IAS
ACQ IAS