What is Repo Rate?
Repo Rate, or Repurchase Rate, is the rate at which RBI lends to banks for short periods.This done by RBI buying government bonds from banks with an agreement to sell them back at a fixed rate. if the RBI wants to make it more expensive for banks to borrow money, it increases the Repo Rate. Similary, if it wants to make it cheaper for banks to borrow money, it reduces the Repo rate.
What is Reverse Repo Rate?
Reverse Repo Rate is the rate of interest at which the RBI borrows funds from other bank in the short term. Like the Repo, this is done by RBI selling government bonds to bank with the commitment to buy them back at a future date. The banks use the Reverse Repo facility to deposit thir short-term excess fuynds with the RBI and earn interest on it. RBI can reduce liquidity in the banking system by increasing the rate at which it borrows from banks. Hiking the Repo and Reverse Repo Rate ends up reducing the liquidity and pushes up interest rate.
What is cash Reserve ratio?
cash reserve Ratio (CRR) is the amount of funds that banks have to park with RBI. if RBI decides to increase the cash reseve ratio, the available amount with banks would reduce.The bank increases CRR to impound surplus liquidity.CRR serves two puposes: One, it it ensures that a portion of bak deposits are always available to meet withdrawal demand, and secondly, it enables that RBI control liquidity in the system, and thereby inflartion, by tying their hands in lending money.
What is SLR? (S tatutory Liquidity Ratio)
Apart from keeping a partion of deposits with RBI cash, bankd have are also required to maintain a minimum percentage of deposits eith tham at the end of every business day, in the from of golde, cash, govenment bonds or other approved securities. This minimum percentage is calles Statutory Liquidity Ratio. In times of hugh growth, an increase in SLR requirement reduces lendable resources of banks and pushes up interest rate.
What is the Bank Rate?
Unlike oher policy rates, the Bank Rate is purely a signalling rate and most interest rates are delinked from the bank Rate. Also, the Bank Rate is the indicative rate at which RBI lends money to other banks (or finacial institutions). The Bank Rate signals the central bank's long-term outlook on interest rates. if the Bank Rate moves up, long-term interest rates also tend to move up, and visce-versa.