monetray policy

Monetary Policy

Policy through which RBI controls money supply and interest rates

Repo Rate

Rate at which RBI lends short-term funds to banks

Reverse Repo Rate

Rate at which RBI borrows money from banks

Bank Rate

Long-term lending rate of RBI to banks

CRR (Cash Reserve Ratio)

% of deposits banks must keep as cash with RBI

SLR (Statutory Liquidity Ratio)

% of deposits banks must maintain in liquid assets (gold, govt securities, cash)

Impact of Raising Repo Rate

Loans costlier, borrowing decreases, inflation reduces

Impact of Lowering Repo Rate

Loans cheaper, borrowing increases, inflation may rise

MSF (Marginal Standing Facility)

Emergency borrowing window for banks (higher rate than repo)

OMO (Open Market Operations)

RBI buys/sells government securities to control liquidity

Inflation Targeting

RBI maintains inflation at 4% ± 2%

RBI Monetary Policy Committee

6-member body deciding policy rates