The Reserve Bank of India keeps on changing various ratio/rates frequently. Why is this done?begin{enumerate}item To keep inflation under control.item To ensure that Indian Rupee does not lose its market value.item To ensure that Banks do not earn huge profits at the cost of public money.end{enumerate}

BANKING GENERAL KNOWLEDGE

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

The Reserve Bank of India keeps on changing various ratio/rates frequently. Why is this done?

A	Only 1
B	Only 2
C	Only 3
D	All 1, 2 & 3

Explanation:

Detailed explanation-1: -The RBI controls Inflation and Deflation by employing a variety of monetary policy tools such as Repo Rate, Reverse Repo Rate, Bank Rate, Open Market Operations, Statutory Liquidity Ratio (SLR), Cash Reserve Ratio (CRR), Liquidity Adjustment Facility (LAF), Market Stabilisation Scheme.

Detailed explanation-2: -A high value of CRR forces banks to keep more reserves and hence helps increase the value of reserve deposit ratio, thus diminishing the value of the money multiplier and money supply or liquidity in the economy.

Detailed explanation-3: -CRR refers to the percentage of deposits banks have to keep as reserve (in cash). This reserve sum is not available for banks for lending and thus if the CRR increases, banks will have less money to lend. Was this answer helpful?

Detailed explanation-4: -Rates like CRR, SLR, Repo Rate and Reverse Repo Rate are increased to impact the money supply in the economy by the RBI to control inflation.

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