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What is CRR (Cash Reserve Ratio)? How does CRR regulate money supply?

What is CRR (Cash Reserve Ratio)?

crr

CRR (Cash Reserve Ratio) is a ratio of total bank deposits or a portion of the banks’ NDTL (Net Demand and Time Liabilities) that the banks are required to maintain with the Central Bank of the country (in India, RBI is the central bank). In other words, we can say under CRR, the banks are required to keep and maintain a certain percentage of the total bank deposits in the current account maintained with RBI (Reserve Bank of India). RBI uses CRR as an instrument either to increase the money supply or to drain out the excessive money from the system.

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What is Bank Rate? How does change in Bank Rate affect Inflation?

What is Bank Rate?

bank rate

The rate at which the Central Bank of the country (in India, RBI is the central bank) allows commercial banks to lend money to corporate or borrowers against their securities. In other words, we can say that the Bank rate is a rate at which banks borrow short term loan from RBI. The newer terms base rate and prime rate have replaced the term bank rate. As soon as the RBI hikes the bank rate, it will not only directly or indirectly affects the interest rates on deposits, bond issues and mortgages but also increase or decrease in EMI.

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What is Reverse Repo Rate? How does change in Reverse Repo Rate affect liquidity system?

What is Reverse Repo Rate?

reverse repo rate

Reverse Repo rate (also known as Reverse Repurchase rate) is the rate at which the Central Bank of the country (in India, RBI is the central bank) borrows shot-term money from the banks. In other words, we can say that the Reverse Repo rate is a rate at which banks lend money to RBI for a short period to manage their excess liquidity. Therefore, it can be said the reverse repo rate is an instrument of monetary policy which RBI uses to absorb liquidity from the bank. Continue reading

What is Repo Rate? How does change in Repo Rate affect economy growth?

What is Repo Rate?

repo rate

Repo rate (also known as Repurchase rate) is the rate at which the Central Bank of the country (in India, RBI is the central bank) lends shot-term money to the banks against their securities. In other words, we can say that the Repo rate is a rate at which banks borrow money from RBI for short periods up to 7 or 14 days. In India, the Repo rate is a similar instrument of monetary policy to inject liquidity in banking system as the discount rate in the United State.

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