UPSC Prelims Practice Questions — RBI absorbs via VRRs ₹6.02 lakh crore

Q1. With reference to the liquidity absorption and injection facilities operated by the Reserve Bank of India, consider the following statements: 1. Unlike the fixed-rate overnight reverse repo, a variable rate reverse repo (VRRR) auction absorbs liquidity at a rate discovered through competitive bidding rather than at a rate pre-announced by the Reserve Bank. 2. Unlike the VRRR, the standing deposit facility absorbs liquidity from LAF participants without the Reserve Bank offering government securities as collateral. 3. Unlike the VRRR, a variable rate repo (VRR) auction withdraws liquidity from the banking system for a specified tenor. Which of the statements given above is/are correct?

  1. Unlike the fixed-rate overnight reverse repo, a variable rate reverse repo (VRRR) auction absorbs liquidity at a rate discovered through competitive bidding rather than at a rate pre-announced by the Reserve Bank.
  2. Unlike the VRRR, the standing deposit facility absorbs liquidity from LAF participants without the Reserve Bank offering government securities as collateral.
  3. Unlike the VRRR, a variable rate repo (VRR) auction withdraws liquidity from the banking system for a specified tenor.
  • A. 1 and 2 only
  • B. 1 and 3 only
  • C. 2 and 3 only
  • D. 1, 2 and 3

Q2. Which one of the following best describes a variable rate repo (VRR) auction conducted by the Reserve Bank of India?

  • A. An operation in which the Reserve Bank supplies funds for a specified tenor against government securities at a rate settled through competitive bidding
  • B. An operation in which the Reserve Bank takes in funds for a specified tenor against government securities at a rate settled through competitive bidding
  • C. A facility under which the Reserve Bank accepts uncollateralised overnight funds from LAF participants at a rate fixed 25 basis points below the policy repo rate
  • D. An operation in which the Reserve Bank makes outright purchases of government securities in order to supply durable liquidity to the banking system

Q3. With reference to the Liquidity Adjustment Facility and allied instruments of monetary policy in India, consider the following statements: 1. The marginal standing facility rate forms the upper bound of the LAF corridor, while the standing deposit facility rate forms its lower bound. 2. Under the marginal standing facility, banks may borrow overnight from the Reserve Bank by dipping into their statutory liquidity ratio holdings up to a prescribed limit. 3. The width of the LAF corridor is presently 100 basis points, placed asymmetrically around the policy repo rate. 4. The Bank Rate is the operating target of monetary policy, and the Reserve Bank seeks to align it with the weighted average call rate. Which of the statements given above is/are NOT correct?

  1. The marginal standing facility rate forms the upper bound of the LAF corridor, while the standing deposit facility rate forms its lower bound.
  2. Under the marginal standing facility, banks may borrow overnight from the Reserve Bank by dipping into their statutory liquidity ratio holdings up to a prescribed limit.
  3. The width of the LAF corridor is presently 100 basis points, placed asymmetrically around the policy repo rate.
  4. The Bank Rate is the operating target of monetary policy, and the Reserve Bank seeks to align it with the weighted average call rate.
  • A. 1 and 2
  • B. 3 and 4
  • C. 2 and 3 only
  • D. 1 and 4

Q4. Permissible tenors and interest rate norms for deposits accepted under the Foreign Currency Non-Resident (Bank) scheme are laid down by which one of the following?

  • A. The Reserve Bank of India, through its Master Directions on deposits and accounts
  • B. The Department of Economic Affairs, through executive instructions to public sector banks
  • C. The Ministry of External Affairs, through its division dealing with overseas Indian affairs
  • D. The Indian Banks' Association, through benchmark rates agreed among member banks

Q5. Under the FCNR(B) scheme, what is the longest maturity for which a bank may accept a deposit?

  • A. Three years
  • B. Five years
  • C. Seven years
  • D. One year

Q6. As on 31 August 2026, the total forex inflows mobilised under the Reserve Bank of India's special USD-INR swap facility stood closest to which one of the following?

  • A. 52.3 billion US dollars
  • B. 80 billion US dollars
  • C. 127.23 billion US dollars
  • D. 136.38 billion US dollars

Q7. In the larger of the two variable rate reverse repo auctions conducted by the Reserve Bank of India on 4 September 2026, how much liquidity was actually absorbed?

  • A. Rs 7,00,000 crore
  • B. Rs 5,41,975 crore
  • C. Rs 1,50,000 crore
  • D. Rs 60,419 crore

Q8. With reference to the Reserve Bank of India's liquidity operations of 4 September 2026, consider the following statements: 1. Both the auctions conducted on that day were of three-day tenor. 2. In each of the two auctions, the amount accepted was less than the amount notified. 3. The cut-off rate in both auctions was 5.24 per cent. 4. Banking system liquidity surplus as on 3 September 2026 was estimated at about Rs 6.02 lakh crore. Which of the statements given above is/are correct?

  1. Both the auctions conducted on that day were of three-day tenor.
  2. In each of the two auctions, the amount accepted was less than the amount notified.
  3. The cut-off rate in both auctions was 5.24 per cent.
  4. Banking system liquidity surplus as on 3 September 2026 was estimated at about Rs 6.02 lakh crore.
  • A. 1, 2 and 3
  • B. 1 and 4 only
  • C. 2, 3 and 4
  • D. 3 and 4 only

Q9. With reference to surplus liquidity and the operating framework of monetary policy in India, consider the following statements: 1. The weighted average call rate is the operating target of monetary policy. 2. On 4 September 2026, the weighted average call money rate ruled at 4.93 per cent, which was below the policy rate. 3. Persistent unabsorbed surplus liquidity tends to push short-term money market rates above the policy repo rate. 4. The Reserve Bank shifts absorption from the fixed-rate overnight window to longer-tenor VRRR auctions in order to inject durable liquidity into the banking system. Which of the statements given above is/are NOT correct?

  1. The weighted average call rate is the operating target of monetary policy.
  2. On 4 September 2026, the weighted average call money rate ruled at 4.93 per cent, which was below the policy rate.
  3. Persistent unabsorbed surplus liquidity tends to push short-term money market rates above the policy repo rate.
  4. The Reserve Bank shifts absorption from the fixed-rate overnight window to longer-tenor VRRR auctions in order to inject durable liquidity into the banking system.
  • A. 1 and 2
  • B. 3 and 4
  • C. 1, 3 and 4
  • D. 2 and 4

Q10. If the votes in the Monetary Policy Committee are equally divided on a resolution, who exercises a second or casting vote?

  • A. The Governor of the Reserve Bank of India
  • B. The Deputy Governor of the Reserve Bank of India in charge of monetary policy
  • C. The senior-most external member appointed by the Central Government
  • D. The officer of the Reserve Bank of India nominated by its Central Board