The correct answer is Cash reserve ratio.
Key Points
- The Cash Reserve Ratio (CRR) refers to the share of Net Demand and Time Liabilities that banks have to hold as balances with the RBI.
- The objective of CRR is to keep inflation under control.
- During high inflation in the economy, the central bank raises the CRR to lower the bank’s loanable funds.
- The current Cash Reserve Ratio is 4.00% (as of June 2021).
- The current Reverse repo rate is 3.35% (as of June 2021).
- The Central bank has the authority to regulate monetary policies.
- The Ministry of Finance has the authority to regulate fiscal policies.
Additional Information
- Marginal Standing facility:
- MSF is a facility under which scheduled commercial banks can borrow an additional amount of overnight money from the RBI by dipping into their SLR portfolio up to a limit at a penal rate of interest.
- This provides a safety wall against unanticipated liquidity shocks to the banking system.
- The MSF is a scheme launched by RBI in 2011-12.
- Under MSF banks can borrow funds up to 1% of their net demand and time liability.
- The minimum amount for which RBI receives application is Rs. 1 crore and afterwards in multiples of rupees 1 crore.
- SLR is a kind of reserve that commercial banks need to maintain before crediting their money to borrowers.
- Regulating the SLR rates is a component of RBI's monetary policy.
- Reserve Bank of India sets the limit for banks (under Banking Regulation Act, 1949) to hold a certain proportion of their assets as SLR.
- Repo Rate:- It is a rate at which the central bank (RBI) lends money to its clients against the government securities.
- Reverse Repo- It is the rate at which the central bank (RBI) borrows money from its clients.
- Reverse Repo is used in India as a tool in which banks will give their surplus fund to RBI for a short-term period and earn money.
- The repo rate is always higher than the reverse repo rate.
- Repo and Reverse repo rates are decided by the Monitory policy committee (MPC) of RBI.
