Finance Explained

The Reserve Bank of India (RBI) uses a variety of monetary policy tools to achieve its monetary policy objectives. These include:

Repo rate: The repo rate is the rate at which the RBI lends money to commercial banks. By adjusting the repo rate, the RBI can influence the cost of borrowing for banks, which in turn affects interest rates for consumers and businesses.

Reverse repo rate: The reverse repo rate is the rate at which the RBI borrows money from commercial banks. By adjusting the reverse repo rate, the RBI can influence the return on excess reserves held by banks, which can affect their lending behavior.

Cash Reserve Ratio (CRR): The CRR is the percentage of deposits that banks are required to hold with the RBI as a reserve. By changing the CRR, the RBI can control the amount of money that banks have available to lend.

Statutory Liquidity Ratio (SLR): The SLR is the percentage of deposits that banks are required to maintain in liquid assets such as cash, gold, and government securities. By changing the SLR, the RBI can control the amount of money that banks have available to lend.

Open Market Operations (OMO): The RBI can buy or sell government securities in the open market to control the money supply and interest rates.

Marginal Standing Facility (MSF): The MSF is a scheme to provide funds to banks in case of an emergency, the rate is higher than the repo rate which discourages banks to borrow under this scheme.

Bank Rate: The bank rate is the rate at which the RBI lends money to commercial banks, it is used as a benchmark rate.