MONETARY POLICY

Deliberate program of action undertaken by (RBI)

to control supply of credit and money in order to achieve pre determined macro economic goals / objectives

Qualitative credit control Tools

1 CRR (Cash Reserve Ratio)

2 Open Market Operation 3 Bank Rate

4 Repo / Reverse Repo

CRR(Cash Reserve Ratio)

% of Net demand (savings+recurring+current a/cs) and time liabilities (long term fixed deposits) required to be maintained by every commercial bank with Reserve bank 4.5% of Net demand & time liabilities

23% in Gilt edge securities,konkan Railways etc

OPEN MARKET OPERATION

RBI sells securities at a discounted rate
Purchases at a higher price Issued only during emergencies Loss to RBI

BANK RATE
Rate at which RBI re discounts eligible commercial bills OR Bill of Exchange

Bank Rate is 9% always higher than Repo by 1%

REPO / REVERSE REPO RATE

Entered into by 2 commercial Banks RBI & commercial Bank Primary dealer & commercial bank For a period of 7 days to 14 days
Commercial Banks sell securities to RBI with a promise to repurchase it Commercial banks have to pay interest which currently is 8%

REVERSE REPO RATE

Commercial Banks park excess funds with RBI and earn interest at lowest rate

1% less than Repo rate .. It is 7% today