INSTITUTE USB

DEPARTMENT BBA
Domain Aptitude
Code- BAT 226
Faculty Name: Harpreet Kaur

Liquidity Injection DISCOVER . LEARN . EMPOWER

 Course Objective
The objective of this course is to impart in-depth
knowledge to the students regarding the theory
and practice of Domain Aptitude.
Course Outcome
CO Title Level
Number
CO1 To understand fundamentals of Remember
Domain Aptitude Source:
https://bizfluent.com/about-66
CO2 To understand different banking Understand 58752-definition.html
terminologies
 LIQUIDITY INJECTION

• When a central bank makes a short-term loan to a member institution, it

is said to be injecting liquidity. Liquidity in economics means cash
present in the economy. Injection of liquidity means pumping
money( mainly in form of cash) in the economy as per the requirements.

• The Reserve Bank of India has the sole responsibility of injection or

absorbing of money from the system.
 LIQUIDITY INJECTION

• When the economy is in need as in present times, RBI through variations

in monetary policy measures injects money so that the economy and
people are saved from entering a recessionary phase. For example :
Seeing the present scenario, RBI lowered CRR, Repo Rate etc so that it
leads to circulation of money and cash in hand with public so that their
needs are met.
 LIQUIDITY INJECTION

• Lowering of repo rate means the commercial banks can borrow at lower
rate from RBI and therefore commercial banks can lend to people at a
lower rate. This leads to inflow of money.
• Furthermore lowering of CRR, means banks can keep a lower amount of
cash as reserve with them and lend remaining amount to the public. This
also stimulate money in the economy.
• The opposite trend is witnessed during inflationary pressure when these
rates are hiked leading to absorption of money from the economy.
 LIQUIDITY INJECTION
Tools of Liquidity Injection:
• Liquidity can be injected by Central bank (RBI in case of India) through
monetary policy tools.
• Reducing reserve requirements by Central bank: by doing this more
money will be in the hands of commercial banks and hence money
supply will increase.
• Open market operations: open market operation is simultaneous sell
and purchase of government securities. Central bank buys Government
securities from public to increase money supply in the Economy
 LIQUIDITY INJECTION
Tools of Liquidity Injection:

• Reducing repo rate: repo rate is the rate at which Central banks lends
money to commercial banks. If repo rate is reduced then loan will not be
costly for commercial banks. They will be able to buy more from Central
bank's window. Hence money supply will increase.
THANK YOU
For queries
Email: harpreet.e11247@cumail.in