Current Affairs · RBI Dynamic Liquidity Management Framework
With reference to the Reserve Bank of India's (RBI) dynamic liquidity management framework, which of the following best explains the structural mechanics and primary operational objective of conducting Variable Repo Rate / Variable Reverse Repo (VRR/VRRR) auctions?
- 1To legally restrict banks from raising funds through Certificate of Deposits (CDs) by permanently capping the amount banks can park with the central bank.
- 2To exclusively absorb foreign exchange reserves and minimize currency risks for foreign investors by offering dollar-denominated returns through the banking system.
- 3To fine-tune systemic liquidity and target short-term market needs by facilitating auctions that align overnight money market rates with the policy repo rate and stabilize market sentiment.✓
- 4To permanently shift the banking system's dependence away from short-term borrowing by establishing a rigid Weighted Average Call Rate (WACR) across all financial quarters.
Correct answer
To fine-tune systemic liquidity and target short-term market needs by facilitating auctions that align overnight money market rates with the policy repo rate and stabilize market sentiment.
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