Question

How effectively the techniques employed by rbi to control the supply of money and credit has been so far used?

Answer 1

hey!

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There are some major 3-4 factors which RBI have used ..

major 3-4 factors which RBI have used ..REPO AND REVERSE REPO RATE:-

• Repo is a transaction wherein securities are sold by the RBI and simultaneously repurchased at a fixed price. This fixed price is determined in context to an interest rate called the repo rate. The transaction is relevant for banks; when they need funds from the RBI, the central bank repurchases the securities.

• The higher the repo rate, more costly are the funds for banks and hence, higher will be the rate that banks pass on to customers.

The higher the repo rate, more costly are the funds for banks and hence, higher will be the rate that banks pass on to customers. 2. CASH RESERVE RATIO (CRR)

• The higher the repo rate, more costly are the funds for banks and hence, higher will be the rate that banks pass on to customers. 2. CASH RESERVE RATIO (CRR)This is the percentage of a bank’s total deposit that need to be kept as cash with the RBI. The central bank can change the ratio to a limit. A high percentage means banks have less to lend, which curbs liquidity; a low CRR does the opposite. The RBI can reduce or raise CRR to tighten or ease liquidity as the situation demands. At present, CRR is at 4/

3. OPEN MARKET OPERATIONS

• 3. OPEN MARKET OPERATIONSThis refers to buying and selling of government securities by RBI to regulate short-term money supply. If RBI wants to induce liquidity or more funds into the system, it will buy government securities and inject funds, and if it wants to curb the amount of money out there, it will sell these to banks, thereby reducing the amount of cash that banks have. RBI uses this tool actively even outside of its monetary policy review to manage liquidity on a regular basis.

3. OPEN MARKET OPERATIONSThis refers to buying and selling of government securities by RBI to regulate short-term money supply. If RBI wants to induce liquidity or more funds into the system, it will buy government securities and inject funds, and if it wants to curb the amount of money out there, it will sell these to banks, thereby reducing the amount of cash that banks have. RBI uses this tool actively even outside of its monetary policy review to manage liquidity on a regular basis.5. BANK RATE

• 3. OPEN MARKET OPERATIONSThis refers to buying and selling of government securities by RBI to regulate short-term money supply. If RBI wants to induce liquidity or more funds into the system, it will buy government securities and inject funds, and if it wants to curb the amount of money out there, it will sell these to banks, thereby reducing the amount of cash that banks have. RBI uses this tool actively even outside of its monetary policy review to manage liquidity on a regular basis.5. BANK RATEThis is the re-discounting rate that RBI extends to banks against securities such as bills of exchange, commercial papers and any other approved securities. In recent years, it has been the repo rather than the bank rate that has acted as a guideline for banks to set their interest rates. It is currently at 8.25%. Directionally, bank rate follows repo..

hope hlp u!!

Answer 2

Explanation:

Legal Reserve Requirement: It is anothermethod of RBI for controlling credit or supply of money. It includes 2 types of methods such as: ... At the time of inflation the RBI increases the rate of CRR, similarly at the time of deflation RBI decreases the rate of CRR