Write down the major instruments of monetary policy?

Question

26 Apr 2025

Answer :

Word Count : 665

Monetary policy refers to the actions taken by the central bank of a country to manage the money supply and interest rates to achieve economic objectives like controlling inflation, stabilizing currency, and fostering conditions for economic growth. In India, the Reserve Bank of India (RBI) is responsible for formulating and implementing monetary policy. The major instruments of monetary policy used by the RBI are:

1. Repo Rate:
The repo rate is the rate at which commercial banks borrow money from the RBI for short-term loans, typically for a period of overnight or up to two weeks. When the RBI wants to increase liquidity in the economy, it lowers the repo rate, making borrowing cheaper for commercial banks. On the other hand, raising the repo rate makes borrowing more expensive, which helps control inflation by reducing the money supply in circulation.

2. Reverse Repo Rate:
The reverse repo rate is the rate at which the RBI borrows money from commercial banks. When banks ______ _________ ______ ________ _________ _____ ___ ________ _______ ______.
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