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RBI RATES:
OMOs
– Open Market Operations
They
are of the following categories.
·
Policy rates
·
Reserve ratios
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POLICY RATES:
REPO RATE
ü Repo
means repurchase.
ü This
is provided by the RBI to the banks against securities.
ü If
it is increased borrowing from RBI becomes more expensive.
ü If
RBI wants to make it more expensive to borrow then it increases repo rate.
ü If
RBI wants to provide more money to the banks then it reduces the repo rate.
ü The
current repo rate is 7.25% (wef June 2, 2015)
RBI à
Banks
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REVERSE REPO RATE
ü In
this mechanism the banks deposit excess liquidity with the RBI.
ü When
there are excess funds available with the banks they use RRR to deposit in the
RBI
ü The
difference between repo rate and reverse repo rate is always 100 basis points
ü The
current reverse repo rate 6.25% (wef June 2, 2015)
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BANK RATE
ü This
is the rate at which the RBI provides finance to commercial banks.
ü This
is used for short term purpose.
ü Once
it is revised by the RBI the banks also revise (either increase or decrease)
deposit rates, base rates and Benchmark Prime lending rate.
ü It
also increases or decreases the equal monthly instalments (EMI).
ü The
current bank rate is 8.25% (with effect from June 2, 2015)
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MARGINAL STANDING FACILITY
RATE
ü It
was introduced in May 2011
ü This
is the rate at which banks borrow funds over night from the RBI against
approved government securities.
ü The
banks get the loan against their excess Statutory Liquidity Ratio (SLR)
ü Banks
borrow money under MSF when there is an acute shortage of money.
ü The
present MSF is 8.25% (wef June 2, 2015)
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RESERVE RATIOS:
ü CRR
– Cash Reserve Ratio.
ü This
is a mechanism to secure the monetary stability in the country.
ü Previously
it was between 3 and 20 percent and now it has been done away with.
ü This
is from the total Net Demand and Liabilities of the bank.
ü Through
this RBI either absorbs or releases the liquidity from the market.
ü If
CRR is increased there less money in the circulation.
ü If
it is reduced then more money is available in the market.
ü Bank
money is deposited with the RBI and it is completely secured and free of any
risk. Second, controls the inflation because cannot send more money into the
market.
ü At
present it is 4%.
What happens if CRR is
reduced?
ü RBI
à
Banks à
Market
What happens if CRR is
increased?
ü Market
à
Banks à
RBI
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SLR – STATUTORY LIQUIDITY
RATIO
ü Statutory
liquidity ratio
ü This
is the minimum proportion of the bank to be maintained net demand and time
liabilities as liquid assets in the form of cash, gold etc.
ü It
regulates the credit growth in India.
ü RBI
can decide this up to 40 %
ü At
present it is 21.5 percent.
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