BT Explainer: Why RBI is using VRRR to absorb surplus liquidity after record FCNR (B) inflows
The Reserve Bank of India (RBI) is stepping up its liquidity management operations as the banking system finds itself with a substantial cash surplus following unexpectedly large inflows through Foreign Currency Non-Resident (Bank), or FCNR (B), deposits. The central bank is scheduled to conduct a ₹7 lakh crore variable rate reverse repo (VRRR) auction with a 30-day tenor on Monday, September 7 , marking a significant move to absorb excess funds from the financial system. The RBI has several instruments at its disposal to regulate and manage liquidity across the financial system. The auction comes after the RBI's special FCNR (B) deposit scheme, announced in June, attracted around $127 billion —far above the market's initial expectations of $80-90 billion. The inflow was also significantly higher than the approximately $26 billion mobilised through a comparable window in 2013. The large inflows have added to domestic liquidity, increasing the need for the RBI to prevent short-t...