The Reserve Bank of India (RBI) will conduct a 14-day variable rate reverse repo (VRRR) auction today, February 24 for a notified amount of ₹50,000 crore. The auction will be held between 10:30 am and 11:00 am, the central bank said in a press release.
The reversal of these funds will take place on March 10.
Why is variable rate reverse repo (VRRR) auction undertaken?
The VRRR is usually undertaken to withdraw excess liquidity from the system.RBI Governor Shaktikanta Das, in the monetary policy minutes released on 22 February said that the overall liquidity remains in surplus, with average daily absorption under the LAF increasing to ₹1.6 lakh crore during December-January from an average of ₹1.4 lakh crore in October-November.
Operational guidelines for the auction
1) The auction will be conducted on CBS (e-Kuber) platform.
2) 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.
3) Banks would be required to place their bids in percentage terms up to two decimal places. Banks can place multiple bids.
4) Successful bids will get accepted at their respective bid rates.
5) Bids at or above the repo rate will be rejected.
6) Once the bidding time is over, all the bids would be arranged in ascending order of the rates quoted and the cut-off rate would be arrived at the rate corresponding to the notified amount of the auction. Successful bidders would be those who have placed their bids at or below the cut-off rate. All bids higher than the cut-off rate would be rejected.
7) There will be provision of pro-rata allotment should there be more than one successful bid at the cut-off rate.
8) RBI will, however, reserve the right to (i) absorb marginally higher amount than the notified amount due to rounding effects and (ii) absorb less than the notified amount without assigning any reasons therefor.
9) The reversal of the above auction would take place at the ‘start of day’ on the date of reversal.
10) The eligible collateral and the applicable haircuts will remain the same as for LAF.
