RBI & Monetary Policy

      Monetary policy refers to the use of instruments under the control of the Central bank there fore RBI to regulate the availability, cost and use of money and credit
     
Objective:

• Maintain price stability
• Ensuring adequate flow of credit  to the productive sector of the economy to support economic growth
• Financial stability

There are mainly two types of instruments used in formation and implementation of monetary policy

1. Direct Instrument
2. Indirect Instrument

Direct Instruments:

Cash Reserve Ratio (CRR):

           The share of net demand and time liabilities that banks has to maintain with the RBI in the form of cash.

• Presently at 4%

Statutory Liquidity Ratio (SLR):

           The  share of net demand and time liabilities that banks must maintain in safe and liquid assets, such as Government Securities, Gold and Cash.

• Presently at 21.5%

Indirect Instruments : 

Liquidity Adjustment Facility (LAF) : 

             Consists of daily infusion or absorption of liquidity on a repurchase basis, through Repo (Liquidity Injection) and Reverse Repo (Liquidity Absorption) operation auction operations, using government securities as collateral. 

Repo Rate : 

          The rate at which RBI lends money to banks for Short Term.

• Presently at 7.75%

Reverse Repo : 

           The rate at which Banks lend money to RBI.

• Presently at 6.75%

Open Market Operation (OMO) : 

             Process of buying and selling of government securities in Open Market. it is a tool to determine the level of liquidity over the medium term.

Market Stabilization Scheme (MSS) : 

             It is process by which RBI and Central Government mutually understanding to issue bonds for stability in market through debt instruments via T-Bill, Gilt edge securities etc.

Bank Rate : 

           The rate at which RBI Lends money to Banks for Long Term

• Presently at 8.85%