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What is CRR, repo and reverse repo rate?

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30/07/2012 2:21 PM

What is CRR, repo and reverse repo rate?

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What is CRR, repo and reverse repo rate?

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30/07/2012 2:21 PM

What is CRR, repo and reverse repo rate?

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India Infoline News Service / 09:30 , Jun 18, 2012 If the central bank decides to increase the CRR, the available amount with the banks comes down

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What is CRR? Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with the RBI. If the central bank decides to increase the CRR, the available amount with the banks comes down. The RBI uses the CRR to drain out excessive money from the system. Commercial banks are required to maintain with the RBI an average cash balance, the amount of which shall not be less than 3% of the total of the Net Demand and Time Liabilities (NDTL), on a fortnightly basis and the RBI is empowered to increase the rate of CRR to such higher rate not exceeding 20% of the NDTL. What is Reverse Repo rate? Reverse Repo rate is the rate at which the RBI borrows money from commercial banks. Banks are always happy to lend money to the RBI since their money are in safe hands with a good interest. An increase in reverse repo rate can prompt banks to park more funds with the RBI to earn higher returns on idle cash. It is also a tool which can be used by the RBI to drain excess money out of the banking system.

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What is a Repo Rate? The rate at which the RBI lends money to commercial banks is called repo rate. It is an instrument of monetary policy. Whenever banks have any shortage of funds they can borrow from the RBI. A reduction in the repo rate helps banks get money at a cheaper rate and vice versa. The repo rate in India is similar to the discount rate in the US. Also read: What is a Reverse Repo rate? What is a Repo Rate?

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What is CRR, repo and reverse repo rate?

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CRR was introduced in 1950 primarily as a measure to ensure safety and liquidity of bank deposits, however over the years it has become an important and effective tool for directly regulating the lending capacity of banks and controlling the money supply in the economy. When the RBI feels that the money supply is increasing and causing an upward pressure on inflation, the RBI has the option of increasing the CRR thereby reducing the deposits available with banks to make loans and hence reducing the money supply and inflation.

As per today financial condition Reverse Repo rate is not feasible by any bank since they borrow from other bank(interbank interest)chargeable to customer at higher rate.

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30/07/2012 2:21 PM

What is CRR, repo and reverse repo rate?

If they concentrate on NPAs inflation rate can be marginalised. RBI print more money than their reserve ratio. Strict monetary policy is required to check every flow of money.

nice introduction but I want to add some more information here so that it will be a useful information for readers. CRR : 4.75% Reverse Repo Rate : 7 % Repo Rate: 8 % SLR: 24% Bank Rate: 9 % May be this information will be useful for readers.
22 people liked this.

good conductivity knowledge for a newly person.

really this is very importment for every comp. people and for ca foundations student

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