Reverse repo rate

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Ravi Kumar Rajgaria

Ravi Kumar Rajgaria (Querist)
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28 April 2008 What is repo rate, reverse repo rate and bank rate? How these are linked with each other?

R.V.RAO

R.V.RAO (Expert)
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29 April 2008 THEREARE MANY RATES RBI DECLARES LIKE BANK RATE,C.R.R ETC...
THEY ARE ALL GIVEN BELOW.(PL.CHECK FOR LATEST RATES TOMORROW AS RBI ANNOUNCES CCEDIT POLICY ON 30 TH APRIL.)
C.R.R 7.75%
REPO RATE 7.5%
REVERSE REPO RATE 6%
BANK RATE 6%

I REPRODUCE MY FOLLOWING RECENT REPLY TO A SIMILAR QUERY
AS PART OF RBI MEASURES TO CONTROL AND MONITOR CREDIT FLOW, AND CASHFLOW IN THE BANKING SYSTEM IN THE ECONOMY OF OUR COUNTRY, THE CREDIT POLICY IS ANNOUNCED BY RBI IN APRIL(PEAK PERIOD CREDIT POLICY ) AND OCTOBER( NON PEAK PERIOD CREDIT POLICY) EVERY YEAR TWICE .
AS A PART OF MONITORING THE CASH HOLDING LEVELS OF BANKS IN THE COUNTRY- TO CONTROL INFLATION AND ALSO TO ENSURE PROPER FLOW OF CASH AND CREDIT TO THE PRIORITY SECTOR AND CURB UNDUE CREDIT OR CASH FLOW TO THE NON PRIORITY SECTORS ,THE RBI REGULATEDS THESE CREDIT AND CASH AVAILABILITY LEVELS IN THE ECONOMY BY VARIOUS WEAPONS, LIKE
BANK RATE
REPORATE
REVERSEREPO RATE
CASH RESERVE RATIO
BANK RATE IN SIMPLE TERMS IS THE RATE AT WHICH RBI LENDS TO BANKS IN THE COUNTRY.
THE PRESENT BANK RATE IS 6%
REPORATE IS THE RATE AT WHICH RBI PARKS ITS SURPLUS FUNDS WITH BANKS AND COLLECTS INTEREST FROM BANKS. SO BANKS PAY PRESENTLY REPORATE @7.75% TO RBI .
SIMILARLY BANKS PARK THEIR SURPLUS FUNDS WITH RBI AND COLLECT INTEREST @ 6%WHICH IS CALLED REVERSE REPO RATE.
CASH RESERVE RATIO OR CRR NOW HIKED BY RBI ON RECENTLY IS FROM 7.5% TO 7.75%.(FURTHER TO GO UP TO 8%). IT IS A PROPORTION OF BANKS DEPOSITS AND LIQUID ASSETS TO BE KEPT WITH RBI COMPULSORILY.
SO THESE ARE IN SIMPLE TERMS WEAPONS IN THE HANDS OF RBI TO SUCK EXCESS LIQUIDITY IN THE ECONOMY AND THUS CONTROL CASH AND CREDIT FLOW IN THE BANKING SYSTEM IN PARTICULAR AND IN THE ECONOMY IN GENERAL.
TO SUCK EVEN MORE LIQUIDITY FROM THE SYSTEM ,RBI MAY RESORT TO MARKET BORROWINGS AND IN RARE AND EXTRAORDINARY CIRCUMSTANCES TO CURB BLACK MONEY IN THE ECONOMY, RBI MAY EVEN RESORT TO DEMONETISATION ( CANCELLATION OF CERTAIN DENOMINATIONS OF CURRENCY LIKE RS. 500 OR RS. 1000 NOTES).
R.V.RAO

R.V.RAO

R.V.RAO (Expert)
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29 April 2008 MR.RAVI,
HERE IS THE LATEST NEWS ON RBI MONETARY POLICY CHANGES ANNOUNCED JUST NOW.
RBI INCREASED YET AGAIN CRR TO 8.25% WEF MAY 24 TH 2008.
THE DETAILS ARE GIVEN BELOW.

Fighting inflation, the Reserve Bank on Tuesday sought to suck out over Rs 9,000 crore (Rs 90 billion) from the banking system by increasing statutory deposits that banks need to keep with it, a move that could put upward pressure on interest rates.

The RBI raised Cash Reserve Ratio by 0.25 per cent to 8.25 per cent in its Annual Monetary Policy within a fortnight of announcing a hike in CRR to suck out Rs 18,500 crore (Rs 185 billion) liquidity from the system.

It, however, left all key short-term lending and borrowing rates (repo & reverse repo) and Bank Rate unchanged. While the previous installment of CRR hike would come into full effect on May 10, today's hike would take effect from May 24.

source:www.rediff.com
R.V.RAO

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