Monetary Policy Tools – Indian Economy – Free PDF Download

CRR – CASH RESERVE RATIO

• Currently CRR is set at 4% of Net Demand and Time Liabilities
• Banks don’t get paid any interest
• All banks must keep CRR, mandated under RBI Act 1934

SLR- STATUTORY LIQUIDITY RATIO

• Presently the SLR rate set by RBI is 18%
• All Banks must keep SLR under RBI Act 1949

BANK RATE

CRR and SLR are counted fortnightly basis. If its not maintained,

REPO RATE

• Introduced in 2000
• All clients of RBI can borrow from RBI against securities but not from SLR.
• The loan duration is usually 14 days.
• Currently Repo Rate is set at 4%
• RBI uses repo rate to control inflation .

REVERSE REPO RATE

• All clients of RBI earn interest from RBI by buying securities and then selling it back to RBI.
• The loan duration is usually 14 days.
• Currently Repo Rate is set at 3.35%
• RBI uses Reverse repo rate to control money supply in the market.

MSF- MARGINAL STANDING FACILITY

• Introduced in 2011
• Emergency borrowings from the bank which is subject to certain limits.
• Currently MSF rate is set at 4.25%

LTRO- LONG TERM REPO OPERATIONS

• RBI will loan a total of 1,00,000 cr rupees in various rounds through E-Kuber platform.
• Interest rate will be on prevailing repo rate.
• Interest rate will be compounded annually.

OMO- OPEN MARKET OPERATIONS

MSS- MARKET STABILIZATION SCHEME

Question
If RBI reduces the SLR by 50 basis points. which of the following is likely to happen? Prelims 2015

1. Liquidity in the banking system
2. Scheduled Commercial Banks may cut their lending rates
3. GDP growth rate increases drastically
4. Foreign Institutional Investors may bring more capital to our country

Indian Economy | Free PDF

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