BANKING GENERAL KNOWLEDGE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Raising of Repo /Reverse Repo Rate
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Increase in CRR
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Increase in SLR
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Contraction of supply of currency
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Detailed explanation-1: -In the situation of inflation, the RBI aims to reduce the money supply. So, the RBI can increase CRR and/or SLR.
Detailed explanation-2: -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.
Detailed explanation-3: -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-4: -Repo rate refers to the rate at which commercial banks borrow money by selling their securities to the Central Bank of our country i.e. Reserve Bank of India (RBI) to maintain liquidity, in case of shortage of funds or due to some statutory measures. It is one of the main tools of RBI to keep inflation under control.
Detailed explanation-5: -The most important and commonly used method to control inflation is monetary policy of the Central Bank. Most central banks use high interest rates as the traditional way to fight or prevent inflation.