Mumbai The Reserve Bank of India (RBI-Reserve Bank of India) has announced the economic policy on Friday. RBI has not made any change in key interest rates for the 11th time in a row. Repo rate will remain 4% with no change. The MSF rate and Bank rate will remain unchanged at 4.25%. The reverse repo rate will also remain unchanged at 3.35%. However, the RBI governor did express concern about inflation. The Reserve Bank Governor said that inflation will continue to haunt the people till March. After that the prices may come down. The Reserve Bank has estimated inflation at 5.3 percent for the financial year 2022, while it has been estimated at 5 percent in 2023.
RBI Governor said that India is walking on a different path as compared to other countries of the world. According to IMF estimates, India is poised to grow at the fastest year-on-year pace among major economies. This recovery will be achieved largely on account of vaccination and continued financial and monetary support. He said that the real GDP growth for the fiscal year 2022-23 is estimated at 7.8%.
Repo rate can be understood in simple language like this. Banks give us loans and we have to pay interest on that loan. Similarly, banks also require a huge amount for their day-to-day operations and they take loans from the Reserve Bank of India (RBI). The rate at which the Reserve Bank charges interest on this loan from them is called Repo Rate.
What is the effect of repo rate on common man
When banks will get loans at a lower interest rate, that is, the repo rate will be lower, then they can also give cheap loans to their customers. And if the Reserve Bank increases the repo rate, it will become expensive for banks to take loans and they will make loans expensive for their customers.
Reverse Repo Rate
It is opposite to the repo rate. When banks have a large amount left after a day’s work, they keep that amount in the Reserve Bank. RBI gives them interest on this amount. The rate at which the Reserve Bank gives interest on this amount is called reverse repo rate.
This is the effect of reverse repo rate on the common man
Whenever there is a lot of liquidity in the markets, RBI increases the reverse repo rate, so that banks deposit their money with it to earn more interest. In this way, less money will be left in the hands of the banks to leave the market.
Know what is Cash Reserve Ratio (CRR)
Under banking rules, every bank has to keep a certain part of its total cash reserve with the Reserve Bank, which is called Cash Reserve Ratio or Cash Reserve Ratio (CRR). These rules have been made so that if at any time a large number of depositors in any bank need to withdraw money, then the bank cannot refuse to repay the money.
Such is the effect of CRR on the common man
If the CRR increases, banks will have to keep a larger portion with the Reserve Bank and they will be left with less money to lend as loans. That is, banks will have less money to give loans to the common man. If the Reserve Bank reduces the CRR, the market cash flow increases.
What is SLR (Statutory Liquidity Ratio/Statutory Liquidity Ratio)
The rate at which banks keep their money with the government is called SLR. It is used to control cash. Commercial banks have to deposit a specific amount, which is used to complete an emergency transaction.