Top

RBIs major measures

RBIs major measures
Highlights

Monetary policy is the process by which monetary authority of a country, generally a central bank controls the supply of money in the economy by its...

Monetary policy is the process by which monetary authority of a country, generally a central bank controls the supply of money in the economy by its control over interest rates in order to maintain price stability and achieve high economic growth. Monetary operations involve following measures:

Open Market Operations
An open market operation is an instrument of monetary policy which involves buying or selling of government securities from or to the public and banks. This helps maintain stability in government securities market.

Cash Reserve Ratio
Cash Reserve Ratio is a certain percentage of bank deposits which banks are required to keep with RBI in the form of reserves or balances. Higher the CRR with the RBI lower will be the liquidity in the system and vice versa.

Statutory Liquidity Ratio
Every financial institution has to maintain a certain quantity of liquid assets with themselves at any point of time of their total time and demand liabilities. These assets have to be kept in non cash form such as G-secs precious metals, approved securities like bonds etc.

Bank Rate
The bank rate, also known as the discount rate, is the rate of interest charged by the RBI for providing funds or loans to the banking system. Increase in the bank rate is the symbol of tightening of RBI monetary policy.

Credit Ceiling
In this operation RBI issues prior information or direction that loans to the commercial banks will be given up to a certain limit. Examples of ceiling are agriculture sector advances, priority sector lending.

Repo and Reverse Repo
Repo rate is the rate at which RBI lends to commercial banks generally against government securities. Reduction in Repo rate helps the commercial banks get money at a cheaper rate and increase in Repo rate discourages the commercial banks to get money as the rate increases and becomes expensive. Reverse Repo rate is the rate at which RBI borrows money from the commercial banks. The increase in the Repo rate will increase the cost of borrowing and lending of the banks which will discourage the public to borrow money and will encourage them to deposit.

Show Full Article
Print Article

Download The Hans India Android App or iOS App for the Latest update on your phone.
Subscribed Failed...
Subscribed Successfully...
Next Story
More Stories