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RBI increases 14-day VRRR amount in December to shift out of overnight auctions

·         RBI’s rebalancing of liquidity management started in february 2020, because the central bank shifted its liquidity absorption tool out of the fixed-rate nightlong reverse repo window into VRRR auctions of longer maturity.

·         In order to absorb extra liquidity within the system, the Reserve Bank of India declared conducting a VRRR program because its higher yield prospects as compared to the fixed rate nightlong reverse repo.

·         The reserve bank of india (RBI) has enhanced the quantity of variable rate reverse repo (VRRR) auctions in Dec, because it is shifting out of the fixed-rate nightlong reverse repo auction and re-establishing VRRR being as main liquidity management operations

·         The amount below the 14-day VRRR auctions on a fortnightly basis has been increased to Rs 6.5 lakh crore for Dec seventeen and additional to Rs 7.5 lakh crore for Dec thirty first.

·         While from Jan 2022 forwards, liquidity absorption are undertaken in the main through the auction route.

·         Market participants expect the heavy liquidity withdrawal from the system can pull overnight balance rates near by repo rate, this might mean that accrual returns on a really short-run, low market risk product like nightlong and liquid funds may rise within the near months.