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Economic Policies- Monetary and Fiscal

In: Business and Management

Submitted By navyamukhi
Words 481
Pages 2

 Policy to control the supply of money in the country  Targeting a rate of interest to attain objective of growth and stability of the economy.

• Increases the total supply of the money in the economy • Used to combat unemployment in a recession by lowering interest rates

• Decreases the total supply of the money in the economy • Used to combat inflation by raising interest rates


Cash Reserve Ratio (CRR) Statutory Liquidity Ratio (SLR) Repo and Reverse Repo Rate

• 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 • RBI uses CRR either to drain excess liquidity or to release funds needed for the economy from time to time.

• SLR is the minimum percentage of deposits that the bank has to maintain in form of gold, cash or other approved securities.

• It is the rate at which the RBI lends shot-term money to the banks. When the repo rate increases borrowing from RBI becomes more expensive.

• It is the rate at which banks park their short-term excess liquidity with the RBI. The RBI uses this tool when it feels there is too much money floating in the banking system.

• Repo rate and reverse repo are an important tool used by the RBI to control the supply of money in the banking system • In case of high inflation, RBI increases the repo rate and thus the cost of borrowing funds become dear.

• By reducing the Repo rate RBI can reduce the cost of borrowing and there by the interest...

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