Answer-The RBI uses Variable Rate Repo (VRR) and Variable Rate Reverse Repo (VRRR) auctions as tools under...

A Variable Rate Repo VRR auction is a collateralised liquidity injection operation through which RBI provides funds to eligible market participants against eligible collateral, with the interest rate determined through an auction process. A Variable Rate Reverse Repo VRRR auction is used to absorb surplus liquidity from the banking system at auction-determined rates. These are liquidity management operations conducted under RBIs operating framework. They should not be described simply as outright purchases or outright sales of government securities, because repo and reverse repo transactions are collateralised liquidity operations involving an agreement to reverse the transaction.

Question

The RBI uses Variable Rate Repo (VR

R and Variable Rate Reverse Repo (VRR
R auctions as tools under the LAF. How do these differ from the Standing Deposit Facility and Marginal Standing Facility?

A VRR and VRRR are fixed-rate instruments while SDF and MSF are variable-rate instruments determined by market auctions

B SDF and MSF are standing facilities available at fixed rates on demand at any time; VRR and VRRR are market-determined (auction-based), discretionary instruments used by the RBI to manage systemic liquidity at variable rates and for specified tenors

C VRR is for foreign currency liquidity management while SDF manages rupee liquidity; VRRR is for bond market stabilisation

D VRR and VRRR apply only during monetary policy review weeks; SDF and MSF operate only during the rest of the month

E SDF and MSF are used only by public sector banks while VRR and VRRR are available to all scheduled commercial banks including private and foreign banks

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The RBI uses Variable Rate Repo (VR

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