What is a Contractionary Policy?

Contractionary Policy refers to the monetary policy which aims to slow down the economy by introducing a reduction in money supply for lesser money and investment. There are many economic tools used by the Central Bank of every nation like CRR, SLR, Repo, Reverse Repo, Interest Rate etc. to keep a check on the volume

What is the meaning of Cash Reserve Ratio?

Cash Reserve Ratio is a specific amount of funds which the commercial banks have to keep with the Reserve Bank of India to ensure liquidity in the system. The funds are a part of the Net Demand and Time Liabilities (NDTL). A reduction in CRR leads to more liquidity in the system as the banks

What is the meaning of Base Rate?

Base Rate is the lowest rate which is defined by the Reserve Bank of India for bankers to lend further. Banks cannot lower the rate any further for its customers. The primary aim of the base rate is to increase transparency in the credit market and make sure that the banks are passing the lowest

RBI’s Monetary Policy

RBI works as the monetary authority of India and there by operates the monetary policy. Reserve Bank of India announces Monetary Policy every year in the Month of April. This is followed by three quarterly Reviews in July, October and January. But, RBI at its discretion can announce the measures at any point of time.

Repo Rate

Repo rate, or repurchase rate, is the rate at which RBI lends to banks for short periods. This is done by RBI buying government bonds from banks with an agreement to sell them back at a fixed rate. Objective of Repo The objective of Repo is to inject liquidity in the system. If RBI wants

Marginal Standing Facility

Marginal Standing Facility is a new Liquidity Adjustment Facility (LAF) window created by Reserve Bank of India in its credit policy of May 2011.  MSF is the rate at which the banks are able to borrow overnight funds from RBI against the approved government securities. The question is – Banks are already able to borrow

Reverse Repo Rate

Reverse repo rate is the rate of interest at which the RBI borrows funds from other banks in the short term . This is done by RBI selling government bonds / securities to banks with the commitment to buy them back at a future date. The banks use the reverse repo facility to deposit their

Liquidity Adjustment Facility (LAF)

Liquidity Adjustment Facility (LAF) is the primary instrument of Reserve Bank of India for modulating liquidity and transmitting interest rate signals to the market. It refers to the difference between the two key rates viz. repo rate and reverse repo rate. Informally, Liquidity Adjustment Facility is also known as Liquidity Corridor. When LAF was introduced? On

Ways and Means Advances

RBI works as a banker to the State Governments by agreement. But there is no fixed minimum reserve balance for the State Governments. All state Governments are required to maintain a minimum reserve balance with RBI, but it depends upon the size of the economy of the state and its budget. However, there are times, when there

Role of RBI as Banker & Debt Manager to the Government

In 1935, Reserve Bank of India, on its inception became the Banker and Debt Manager to the Government and this is a very important function. As per the Reserve Bank of India Act 1934, the Central Government entrusts the Reserve Bank with all its money, remittance, exchange and banking transactions in India and the management of