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5 September 2026

RBI liquidity absorption via VRRR

The topic concerns RBI's monetary policy tools for liquidity management, which is a core component of the Indian economy syllabus and frequently appears in UPSC Mains questions regarding banking and financial stability.

1 min read 2 questions 1 prelims

Notes

  • RBI conducted two variable rate reverse repo (VRRR) auctions to absorb liquidity from the banking system.
  • Total liquidity absorbed through these auctions amounted to over ₹6.02 lakh crore.
  • The first auction (three-day) saw bids of ₹5,41,975 crore against a notified amount of ₹7 lakh crore.
  • The second auction (three-day) saw banks park ₹60,419 crore against a notified amount of ₹1.5 lakh crore.
  • Banking system liquidity surplus was estimated at approximately ₹10.32 lakh crore as of September 3.
  • Increased liquidity absorption is attributed to large inflows from the special FCNR(B) deposit scheme.
  • Special forex measures mobilized $136.38 billion by August 31, comprising $127.23 billion (FCNR(B)), $5.26 billion (OFCBs), and $3.89 billion (ECBs).

Questions

  1. Explain the mechanism of Variable Rate Reverse Repo (VRRR) auctions and discuss why the Reserve Bank of India utilizes this tool to manage surplus liquidity in the banking system. 150 words
    Attempt this — 150 words in 8 min
    0 / 150 words 8:00
  2. The influx of foreign currency deposits has significantly impacted domestic liquidity conditions. Analyze the role of the Reserve Bank of India in maintaining monetary stability amidst large capital inflows and the challenges associated with managing excess liquidity. 250 words
    Attempt this — 250 words in 11 min
    0 / 250 words 11:00

Prelims

  1. What is the primary objective of the Reserve Bank of India conducting Variable Rate Reverse Repo (VRRR) auctions?

Syllabus

Topics

Sources

250words.in · https://250words.in/daily/2026-09-05/rbi-liquidity-absorption-via-vrrr