FinDyan

     Monetary Policy Generally we read RBI announces Monetary Policy or some changes happened in monetary policy. So what is Monetary policy & how it effects our day to day life..!                     Monetary policy is how  central banks  manage  liquidity  to create economic growth. Liquidity is how much there is in the  money supply . That includes credit, cash, checks and money market  mutual funds . The most important of these is credit. It includes loans, bonds and mortgages.  RBI Reserve Bank of India. Every country has its own Central bank(Reserve or Monetary bank). Meaning of Monetary Policy The term monetary policy is also known as the 'credit policy' or called 'RBI's money management policy' in India. How much should be the supply of money in the economy? How much should be the ratio of interest? How much should be ...

Repo (Repurchase) Rate Repo rate is the rate at which banks borrow funds from the RBI to meet the gap between the demand they are facing for money (loans) and how much they have on hand to lend. If the RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate; similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate. Reverse Repo Rate This is the exact opposite of repo rate. The rate at which RBI borrows money from the banks (or banks lend money to the RBI) is termed the reverse repo rate. The RBI uses this tool when it feels there is too much money floating in the banking system If the reverse repo rate is increased, it means the RBI will borrow money from the bank and offer them a lucrative rate of interest. As a result, banks would prefer to keep their money with the RBI (which is absolutely risk free) instead of lending it out (this option comes with a certain amount of risk) Consequently, bank...