CONTROL OF MONEY SUPPLY BY RBI (PART 2) : REVERSE REPO RATE, CRR AND SLR

REVERSE REPO RATE

- It is the rate at which the RBI accepts deposits from the commercial banks through government securities

- RBI raises the Reverse Repo Rate to control INFLATION

- RBI reduces the Reverse Repo Rate to control DEFLATION

CASH RESERVE RATIO

- CRR refers to the minimum percentage of Net Demand and Time Liabilities (NDTL), to be kept by commercial banks with the RBI

- RBI fixes the CRR

- In times of Inflation RBI raises the CRR to control it

- In times of Deflation RBI reduces the CRR as a measure of control

STATUTORY LIQUIDITY RATIO

- A fixed percentage of LIQUID ASSETS which every commercial bank is required to maintain with itself is known as the SLR

- These liquid assets are in the form of : CASH, GOLD and UNENCUMBERED APPROVED SECURITIES

- SLR is also fixed by the RBI

- RBI raises SLR to control Inflation

- RBI reduces SLR to control Deflation