Q. With reference to the Variable Rate Reverse Repo (VRRR), consider the following statements:
1.It is a tool used by the Reserve Bank of India (RBI) to absorb excess liquidity from the banking system for a short period.
2.Under VRRR, the RBI takes money from banks and offers them interest in return.
Which of the statements given above is/are correct?
Answer: C
Notes:
Explanation: The VRRR is a liquidity management tool used by the RBI to absorb surplus money from the banking system temporarily. Unlike the fixed-rate Reverse Repo, in VRRR the rate is decided through an auction, allowing market forces to determine the rate. When banks park their excess funds with the RBI under this facility, the RBI pays them interest.
Source- ET
