It is that rate of interest at which the central bank of a country (India: RBI) provides refinancing / re discounting facilities to commercial banks.
In other words it is that rate of interest at which RBI provides financial accommodation to commercial banks. The rate of interest is 6%. When this rate is raised, it is called Dear Money
Policy. When it is lowered it is called Cheap Money Policy. This rate may generally be raised
during a period of inflation. It may be lowered during the period of Recession. (Dear is Costly).
Cash Reserve Ratio (CRR): It is that ratio of the total deposits of a bank which it has to
necessarily keep with the Central Bank of a country at any given point of time. This ratio at
present is 5.75%. This ratio generally may be raised at the time of inflation and lowered at the
time of recession. When it is raised it is called a policy of Credit Squeeze or Tight Money Policy
and when it lowered it is called Liberal Credit Policy.
Busy Season - harvesting -October to April— raised CRR.
Lean Season - Sowing – May to October — Lower CRR.
Statutory Liquidity Rate (SLR): SLR is that ratio of the total deposits of the bank in India which
it has to maintain and keep with itself in the form of liquid funds i.e. in the form of
(a) Cash in hand
(b) Governments Securities. SLR at present is 25%.
Short term Securities are called – T-Bills (max of 1 years)
Long term Securities are called – Dated Bills (more than 7 years)
According to Banking Regulation
Amendment Act, 1949 - CRR to be 3%-15%
SLR to be 25%-40%
Open Market Operations (OMO) :
OMO are operations conducted by the Central bank of any country
under which from time to time it may buy government securities from commercial banks or sell
securities to commercial banks. Generally, it may sell securities during a period of Inflation and
it may buy securities during a period of recession.
Repos means Repurchase Options / Auctions exercised by the RBI in India since 1992 for the
first time, to even out short term fluctuations in the money market. Hence, repos are essentially
short term operations conducted to manage the supply and demand of liquidity in a short period
under the RBI’s Liquidity Adjustment Facility Programme. Repo means that Reserve Bank repurchases
some government securities for a very short period (7 days repo, 14 days repo etc..) from
commercial banks and thus injects
liquidity into the system.