What about Liquidity and REPO RATE HIKE: UPSC Daily Important Topic | 17 August 2022

What about Liquidity and REPO RATE HIKE

✓While improving the availability of funds with the banks, Rates Hike will lead to a gradual decline in systemic liquidity.

✓To maintain adequate liquidity in the system, RBI will conduct two-way fine-tuning operations in the form of Variable Rate Repo (VRR) and Variable Rate Reverse Repo (VRRR) operations of different maturities.

✓The Variable Rate Operations are usually undertaken to reduce the money flow by taking out existing cash present in the system.

✓The central bank has been rebalancing the surplus liquidity in the system by shifting it out of the fixed-rate overnight reverse repo window to VRRR auctions of longer maturity.