Name: Understanding Money and Banking
Uploaded: 2019-07-19
Duration: 6 min 21 s
Description: Understanding Money and Banking: A High School Guide

Question

What are the instruments of monetary policy of RBI?

Accepted Answer

The main instruments of the monetary policy are

Bank Rate or Discount Rate Policy: It refers to the minimum official rate at which the Central bank extends financial accommodation to the commercial banks.

Cash Reserve Ratio: The share of bank's deposits decided by the Central bank that the commercial banks hold is called the cash reserve ratio.

Statutory Liquidity Ratio: The minimum percentage of deposits that banks are required to reserve in the form of liquid assets like cash, gold, and securities before offering credit facilities to customers. This percentage is decided by the central bank.

Repo Rate: The rate at which commercial banks borrow money from the Central bank of the country by keeping securities with it, in order to maintain liquidity.

Reserve Repo Rate: The rate at which the Central bank borrows money from the commercial banks. It is an important tool of the Central bank to control liquidity and inflation in an economy.

Open Market Operations: This term implies the purchase and sale of government securities, bills, and securities of well-reputed private concerns by the Central bank.

What are the instruments of monetary policy of RBI?

Statutory Liquidity Ratio: The minimum percentage of deposits that banks are required to reserve in the form of&nbsp;liquid assets like cash, gold, and securities before offering credit facilities to customers. This percentage is decided by the central bank.
Repo Rate: The rate at which commercial banks borrow money from the Central bank of the country by keeping securities with it, in order to maintain liquidity.

Important Questions on Money and Banking

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