UPSC Prelims Practice Questions — RBI injects transient liquidity of ₹81,590 cr. via VRR auction
Q1. Under the RBI's Liquidity Adjustment Facility, which one of the following is the principal auction-based instrument used to ABSORB surplus liquidity from the banking system?
- A. Variable Rate Reverse Repo (VRRR)
- B. Variable Rate Repo (VRR)
- C. Marginal Standing Facility (MSF)
- D. Open Market Operation (OMO) purchase
Q2. In the context of the RBI's liquidity operations, a Variable Rate Repo (VRR) auction is best described as an operation in which the RBI:
- A. Lends funds to banks against government securities at a rate discovered through auction, injecting liquidity
- B. Absorbs surplus funds from banks against government securities at an auction-discovered rate
- C. Accepts uncollateralised overnight deposits from banks at a rate 25 bps below the repo rate
- D. Purchases government securities outright to inject durable liquidity into the system
Q3. Which one of the following correctly describes the Standing Deposit Facility (SDF) within the RBI's LAF corridor?
- A. An uncollateralised overnight facility to absorb liquidity, placed 25 bps below the policy repo rate
- B. A penal facility to borrow overnight against SLR securities, placed 25 bps above the policy repo rate
- C. An auction facility to inject term liquidity against government securities at a variable rate
- D. A facility to purchase government securities outright for durable liquidity absorption
Q4. Given that the MSF rate is set above the policy repo rate and the SDF rate below it, by how many basis points wide is the RBI's LAF corridor (MSF minus SDF)?
- A. 25 basis points
- B. 50 basis points
- C. 65 basis points
- D. 100 basis points
Q5. With reference to the RBI's three-day VRR auction of 22 May 2026, consider the following statements:
1. The amount injected, ₹81,590 crore, fell short of the notified amount of ₹1 lakh crore.
2. The cut-off rate of 5.26% was exactly equal to the prevailing policy repo rate.
3. The auction had a tenor of three days.
Which of the statements given above is/are correct?
- The amount injected, ₹81,590 crore, fell short of the notified amount of ₹1 lakh crore.
- The cut-off rate of 5.26% was exactly equal to the prevailing policy repo rate.
- The auction had a tenor of three days.
- A. 1 and 2 only
- B. 1 and 3 only
- C. 2 and 3 only
- D. 1, 2 and 3
Q6. In the RBI's three-day VRR auction of 22 May 2026, what was the notified amount — the maximum liquidity the RBI was willing to inject?
- A. ₹50,000 crore
- B. ₹81,590 crore
- C. ₹1,00,000 crore
- D. ₹1,25,000 crore
Q7. The 5.26% cut-off rate at the RBI's June 2026 VRR auctions was kept closely aligned to which policy rate determined by the Monetary Policy Committee?
- A. The policy repo rate of 5.25%
- B. The Standing Deposit Facility rate of 5.00%
- C. The Marginal Standing Facility rate of 5.50%
- D. The Bank Rate of 5.75%
Q8. On 23 June 2026 the RBI injected ₹1,41,171 crore of transient liquidity after the banking system slipped into deficit on GST outflows. This VRR auction had a tenor of how many days?
- A. 2 days
- B. 3 days
- C. 7 days
- D. 14 days
Q9. A build-up of the Union government's cash balances, one of the factors that tightens banking-system liquidity, is held with which of the following?
- A. The Reserve Bank of India
- B. The State Bank of India
- C. NABARD
- D. The Securities and Exchange Board of India
Q10. Consider the following statements about factors affecting banking-system liquidity in India:
1. When the RBI buys US dollars in the foreign exchange market, it injects rupee liquidity into the banking system.
2. A rise in currency in circulation adds to the banking system's liquidity surplus.
3. Advance-tax and GST outflows shift funds from banks to the government, tightening liquidity.
Which of the statements given above is/are correct?
- When the RBI buys US dollars in the foreign exchange market, it injects rupee liquidity into the banking system.
- A rise in currency in circulation adds to the banking system's liquidity surplus.
- Advance-tax and GST outflows shift funds from banks to the government, tightening liquidity.
- A. 1 and 2 only
- B. 1 and 3 only
- C. 2 and 3 only
- D. 1, 2 and 3
Q11. The Monetary Policy Committee (MPC) of the RBI, which fixes the policy repo rate to which VRR cut-offs are anchored, consists of how many members in total?
- A. 4 members
- B. 6 members
- C. 7 members
- D. 12 members
Q12. In 2025 the RBI reduced the Cash Reserve Ratio (CRR) to 3% of banks' net demand and time liabilities. By how many basis points was the CRR cut in total?
- A. 25 basis points
- B. 50 basis points
- C. 100 basis points
- D. 150 basis points