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TOOLS OF MONETARY POLICY
1.
2.
3. TOOLS OF MONETARY POLICY
CASH
RESERVE
RATIO
STATUTORY
LIQUIDITY
RATIO
REPO RATE
REVERSE
REPO RATE
BANK RATE
4. 1. CASH RESERVE RATIO
Cash Reserve Ratio (CRR) is a specified minimum
fraction of the total deposits of customers, which
commercial banks have to hold as reserves either
in cash or as deposits with the central bank.
CRR is set according to the guidelines of the central
bank of a country.
Current CRR is 4%.
5. 2. STATURTORY LIQUIDITY RATIO
SLR stands for Statutory Liquidity Ratio.
This term is used by bankers and indicates the
minimum percentage of deposits that the bank has to
maintain in form of gold, cash or other approved
securities.
Current SLR is 21.5%.
6. 3. REPO RATE
Repo rate also known as the benchmark interest rate is
the rate at which the RBI lends money to the banks for a
short term.
When the repo rate increases, borrowing from RBI
becomes more expensive. If RBI wants to make it more
expensive for the banks to borrow money, it increases the
repo rate similarly, if it wants to make it cheaper for banks
to borrow money it reduces the repo rate.
Current Repo Rate is 6.75%.
7.
8. 4. REVERSE REPO RATE
Reverse Repo rate is the short term borrowing rate at which
RBI borrows money from banks. The Reserve bank uses this
tool when it feels there is too much money floating in the
banking system.
An increase in the reverse repo rate means that the banks
will get a higher rate of interest from RBI.
As a result, banks prefer to lend their money to RBI which
is always safe instead of lending it others which is always
risky.
Current Reverse Repo Rate is 5.75%.
9. 5. BANK RATE
Bank rate in India is determined by Reserve Bank of
India (RBI). It is the rate at which RBI gives loan to
commercial banks without keeping any collateral.
10. 6. Prime Lending Rate (PLR)
The interest rate charged by banks to their largest,
most secure, and
most creditworthy customers on short-term loans.
This rate is used as a guide for computing interest
rates for other borrowers.