It is the first time since October that the rate has been increased at consecutive policy meetings. In June, the MPC also increased the key rate by 25 bps.
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When the repo rate increases, borrowing from RBI becomes more expensive. If RBI wants to make it more expensive for the banks to borrow money, Rbi key rates increases the repo rate similarly, if it wants to make it cheaper for banks to borrow money it reduces the repo rate.
Current repo rate is 6. The Reserve bank uses this tool when it feels there is too much money floating in the banking system. An increase in the reverse repo rate means that the banks will get a higher rate of interest from RBI.
As a result, banks prefer to lend their money to RBI which is always safe instead of lending it others people, companies etc which is always risky. Repo Rate signifies the rate at which liquidity is injected in the banking system by RBI, whereas Reverse Repo rate signifies the rate at which the central bank absorbs liquidity from the banks.
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Fundamental Analysis and Stock Valuation Simplified. However Banks don't hold these as cash with themselves, they deposit such cash aka currency chests with Reserve Bank of Indiawhich is considered as equivalent to holding cash with themselves.
Therefore, higher the ratio, the lower is the amount that banks will be able to use for lending and investment. This power of Reserve bank of India to reduce the lendable amount by increasing the CRR, makes it an instrument in the hands of a central bank through which it can control the amount that banks lend.
Thus, it is a tool used by RBI to control liquidity in the banking system.
SLR - Statutory Liquidity Ratio - Every bank is required to maintain at the close of business every day, a minimum proportion of their Net Demand and Time Liabilities as liquid assets in the form of cash, gold and un-encumbered approved securities.
An increase in SLR also restricts the bank's leverage position to pump more money into the economy. Net Demand Liabilities - Bank accounts from which you can withdraw your money at any time like your savings accounts and current account.
Time Liabilities - Bank accounts where you cannot immediately withdraw your money but have to wait for certain period.
Call Rate - Inter bank borrowing rate - Interest Rate paid by the banks for lending and borrowing funds with maturity period ranging from one day to 14 days. Call money market deals with extremely short term lending between banks themselves. After Lehman Brothers went bankrupt Call Rate sky rocketed to such an insane level that banks stopped lending to other banks.
MSF - Marginal Standing facility - It is a special window for banks to borrow from RBI against approved government securities in an emergency situation like an acute cash shortage. MSF rate is higher then Repo rate.
Bank rate is not used by RBI for monetary management now. It is now same as the MSF rate. Current bank rate is 6.If RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate similarly, if it wants to make it cheaper for banks to borrow money it reduces the repo rate.
Current repo rate is % Reverse Repo rate is the short term borrowing rate at . As Inflation Soars, RBI Likely To Hike Key Rates Twice In Experts June was the eighth straight month in which inflation was higher than the central bank's medium-term target of 4 per cent. Story of my appointment as director RBI.
This is the first directorship ever. Never accepted any private or PSU directorship. Not even audit of PSUs or Pvt cos. Wanted to be free to speak.
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