Question
Which of the following tools is used by RBI to inject
liquidity in the system?Solution
Repo Rate is the rate at which RBI lends to banks. Increasing the repo rate reduces liquidity; reducing it increases liquidity. Other Options (Why Not Correct):
- CRR (Cash Reserve Ratio): Reducing CRR injects liquidity, but it is not the primary active tool used for this purpose.
- SLR (Statutory Liquidity Ratio): Primarily used to control inflation and ensure liquidity, but it does not directly inject liquidity.
- Bank Rate: A long-term rate used for more permanent liquidity adjustments.
- Reverse Repo Rate: Used to absorb (not inject) liquidity by encouraging banks to park funds with the RBI.
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