Monetary Policy (CRR, SLR, SLF, ILF, Bank Rate, REPO, Reverse Repo, OMO,Selective Instrument) Part 2

Monetary policy is the process by which a central bank manages the supply of money in an economy to achieve specific macroeconomic goals, such as price stability, economic growth, and full employment. The central bank uses various tools to influence the money supply and credit conditions in the economy, including interest rates, reserve requirements, and open market operations. There are two main types of monetary policy: expansionary and contractionary. Expansionary monetary policy is used to stimulate economic growth and reduce unemployment by increasing the money supply and lowering interest rates. This can be done through measures such as reducing reserve requirements, lowering the discount rate, and engaging in open market purchases of government securities. On the other hand, contractionary monetary policy is used to slow down economic activity and control inflation by decreasing the money supply and raising interest rates. This can be done through measures such as increasing reserve requirements, raising the discount rate, and selling government securities in the open market. The Cash Reserve Ratio (CRR) and the Statutory Liquidity Ratio (SLR) are two examples of reserve requirements. The CRR is the percentage of total deposits that commercial banks are required to hold as reserves in cash with the central bank, while the SLR is the percentage of total deposits that commercial banks are required to hold in liquid assets, such as government securities. These requirements limit the amount of money that banks can lend and help control inflation and credit growth. Standing Liquidity Facility (SLF) and Intra-day Liquidity Facility (ILF) are tools used by the central bank to provide short-term liquidity to banks to help them meet their temporary cash flow needs. Banks can borrow from the SLF and ILF at predetermined rates against collateral. The Bank Rate is the rate at which the central bank lends money to commercial banks for long-term purposes, such as investment in fixed assets. It is typically higher than the repo rate. The Repo rate is the rate at which the central bank lends money to commercial banks for short-term purposes, such as meeting their liquidity needs. The reverse repo rate is the rate at which the central bank borrows money from commercial banks by selling government securities to them. These rates influence short-term interest rates in the economy and affect the cost of borrowing and lending for banks and businesses. Open Market Operations (OMO) involve buying or selling government securities in the open market to influence the money supply and credit conditions in the economy. If the central bank buys government securities, it injects money into the economy and lowers interest rates, while selling government securities removes money from the economy and raises interest rates. Selective Instruments refer to various measures used by the central bank to influence specific sectors or types of borrowers in the economy, such as credit rationing, moral suasion, and direct credit controls. These tools are used to address specific market failures or to promote social objectives, such as providing credit to small businesses, farmers, or exporters. Overall, the central bank uses a mix of these tools and strategies to achieve its monetary policy objectives and maintain macroeconomic stability in the economy. Vision Academy एक शिक्षालय हो जहाँ विभिन्न ज्ञानप्रद जानकारीहरु पाउन सकिन्छ । हामिसँग जोडिन तपशिल बमोजिमका ठेगानामा जोडिन सक्नुहुन्छ । धन्यबाद । 𝐅𝐨𝐫 𝐕𝐢𝐝𝐞𝐨 𝐮𝐩𝐝𝐚𝐭𝐞𝐬 𝐟𝐨𝐥𝐥𝐨𝐰 𝐮𝐬 𝐨𝐧 : 👉 Youtube : https://www.youtube.com/channel/UCKiK... 👉 Facebook : https://www.facebook.com/profile.php?... 👉 Tiktok :visionacademy7 👉 Gmail :[email protected]