ECONOMICAL TOOLS TO CONTROL INFLATION
To control the inflation central bank of India (RBI) takes some strategy in the form of economical tool. Among many things repo and reverse repo is most populer.
REPO RATE:
Repo rate or repurchase rate is the rate at which banks borrow money from the central bank
(RBI) for a short period of time by selling their securities (financial assets) to the central bank with an agreement to repurchase it at a future date at predetermined price. Here central bank plays the role of lender and other banking institution become brrower.
REVERSE REPO RATE:
Reverse repo rate is just opposite of repo rate.Reverse repo rate is the rate at which the central bank (RBI) borrows funds from other banks for a short duration. The bank deposit their short excess funds with the central bank and earn interest on it.
This two tools mainly used by the RBI to control the infletion.
BANK RATE:
Bank rate is the rate at which banks borrow money from the central bank with out any sale of security. It is generally for a longer period of time.
CASH RESERVE RATIO:
Cash Reserve ratio means percentage of cash is required to be kept aside by the bank as per RBI regulation.Have you ever wondered what happen to the amount that you deposit in bank? it is used by bank to earn money by investing or lending it to others for example housing loan, personal loan etc. but as per the regulation bank can not use the entire amount deposited with them for this purpose.
They required to maintain a percentage of there deposit as cash.So if you deposit i you deposit Rs 1000 for lending or investment purpose they have to maintain a position of the deposit as cash and can use only the remaining amount for lending/investment. The minimum percentage which is determined by the central bank is known as CASH RESERVE RATIO (CRR).
To control the inflation central bank of India (RBI) takes some strategy in the form of economical tool. Among many things repo and reverse repo is most populer.
REPO RATE:
Repo rate or repurchase rate is the rate at which banks borrow money from the central bank
(RBI) for a short period of time by selling their securities (financial assets) to the central bank with an agreement to repurchase it at a future date at predetermined price. Here central bank plays the role of lender and other banking institution become brrower.
REVERSE REPO RATE:
Reverse repo rate is just opposite of repo rate.Reverse repo rate is the rate at which the central bank (RBI) borrows funds from other banks for a short duration. The bank deposit their short excess funds with the central bank and earn interest on it.
This two tools mainly used by the RBI to control the infletion.
BANK RATE:
Bank rate is the rate at which banks borrow money from the central bank with out any sale of security. It is generally for a longer period of time.
CASH RESERVE RATIO:
Cash Reserve ratio means percentage of cash is required to be kept aside by the bank as per RBI regulation.Have you ever wondered what happen to the amount that you deposit in bank? it is used by bank to earn money by investing or lending it to others for example housing loan, personal loan etc. but as per the regulation bank can not use the entire amount deposited with them for this purpose.
They required to maintain a percentage of there deposit as cash.So if you deposit i you deposit Rs 1000 for lending or investment purpose they have to maintain a position of the deposit as cash and can use only the remaining amount for lending/investment. The minimum percentage which is determined by the central bank is known as CASH RESERVE RATIO (CRR).
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