Economy · GS3.1 · 2026-10-13 · 3 min read · 2026-10-13-pm

RBI's Variable Rate Reverse Repo Auctions and Money Market Operations Explained

The Reserve Bank of India (RBI) conducted Variable Rate Reverse Repo (VRRR) auctions and other money market operations from October 9 to 11, 2026, managing liquidity and influencing interest rates. Understanding these operations is crucial for UPSC aspirants as they reflect RBI's monetary policy tools and their impact on the economy.

RBI uses VRRR auctions and money market operations to absorb liquidity and guide short-term interest rates in line with its monetary policy.

Why is this in the news?

RBI conducted VRRR auctions and money market operations on October 9, 10, and 11, 2026, to manage liquidity and influence interest rates.

[1] Reserve Bank of India[2] Reserve Bank of India[3] Reserve Bank of India

What are Variable Rate Reverse Repo auctions and their purpose?

  • Definition of VRRR. Variable Rate Reverse Repo auctions are operations where RBI absorbs excess liquidity from banks by borrowing funds at variable rates determined through auction.
  • Purpose of VRRR. These auctions help RBI manage surplus liquidity in the banking system, thereby influencing short-term interest rates and maintaining monetary stability.

[1] Reserve Bank of India[2] Reserve Bank of India[3] Reserve Bank of India

How did RBI conduct money market operations from October 9 to 11, 2026?

  • Liquidity absorption. RBI absorbed liquidity through VRRR auctions and Standing Deposit Facility (SDF), with net liquidity absorption ranging from ₹1,38,979 crore to ₹1,40,490 crore daily.
  • Rates and volumes. The weighted average rates for overnight segments hovered around 5.30%, while VRRR cut-off rates were at 5.49% during these days.
  • Other operations. RBI also conducted repo operations, marginal standing facility (MSF), and standing liquidity facility (SLF) to manage liquidity and short-term rates.

[1] Reserve Bank of India[2] Reserve Bank of India[3] Reserve Bank of India

Why do these operations matter for UPSC aspirants?

  • Monetary policy tool. VRRR auctions and money market operations are key instruments RBI uses to regulate liquidity and control inflation, topics relevant for GS Paper 3.
  • Economic impact. Understanding these operations helps explain how RBI influences interest rates, credit availability, and overall economic stability.
  • Exam relevance. Questions on RBI's monetary policy tools and their effects on the economy can appear in both Prelims and Mains exams.

[1] Reserve Bank of India[2] Reserve Bank of India[3] Reserve Bank of India

Key numbers

FigureWhat it measuresSource
₹1,39,847 croreAmount absorbed by RBI through VRRR auction on October 9, 2026

[1] Reserve Bank of India

5.49%Cut-off rate for VRRR auctions during October 9-11, 2026

[1] Reserve Bank of India

₹1,40,490 croreNet liquidity absorbed by RBI on October 11, 2026

[3] Reserve Bank of India

Back to basics: Monetary Policy Tools

Monetary policy tools are instruments used by central banks like RBI to control money supply and interest rates in the economy. These include repo and reverse repo operations, where the central bank lends or borrows money from banks, influencing liquidity and inflation. Variable Rate Reverse Repo auctions allow RBI to absorb excess liquidity by borrowing funds at variable interest rates determined through auctions.

Practice: MCQ, Mains and revision

Prelims MCQ

Consider the following statements about RBI's money market operations: 1. Variable Rate Reverse Repo auctions are conducted to inject liquidity into the banking system. 2. The cut-off rate for VRRR auctions on October 9, 2026, was 5.49%.

  1. 1 only
  2. 2 only
  3. Both 1 and 2
  4. Neither 1 nor 2
Answer and trap

Answer: (b). Statement 1 is incorrect because VRRR auctions absorb liquidity, not inject it; Statement 2 is correct as per official RBI data.

Mains question (15 marks)

Examine how the Reserve Bank of India uses Variable Rate Reverse Repo auctions and other money market operations as tools of monetary policy.

Examine: Explain the mechanism of VRRR auctions and related money market operations and their impact on liquidity and interest rates.

Intro: Introduce the concept of monetary policy tools used by RBI to manage liquidity and inflation.

  • Explain the mechanism of Variable Rate Reverse Repo auctions and how they absorb excess liquidity.
  • Discuss other money market operations like repo, MSF, and SDF and their roles.
  • Analyze the impact of these operations on short-term interest rates and economic stability.

Conclusion: Summarize the importance of these tools in RBI's monetary policy framework.

Previous year question (2019, GS4)

What is meant by the term ‘constitutional morality’? How does one uphold constitutional morality?

Understanding RBI's monetary operations helps illustrate how constitutional morality can be upheld through transparent and accountable economic governance.

Quick revision

What is the purpose of Variable Rate Reverse Repo auctions?
They are conducted by RBI to absorb excess liquidity from the banking system at variable interest rates.
What was the cut-off rate for VRRR auctions on October 9, 2026?
The cut-off rate was 5.49%.
How much liquidity did RBI absorb through VRRR auctions on October 9, 2026?
RBI absorbed ₹1,39,847 crore through VRRR auctions on that day.

Updates

Sources

  1. [1] Reserve Bank of India: Money Market Operations as on October 09, 2026 · 2026-10-12 · official
  2. [2] Reserve Bank of India: Money Market Operations as on October 10, 2026 · 2026-10-12 · official
  3. [3] Reserve Bank of India: Money Market Operations as on October 11, 2026 · 2026-10-12 · official