Question

    Which of the following tools is used by RBI to inject

    liquidity in the system?
    A CRR Correct Answer Incorrect Answer
    B Repo Rate Correct Answer Incorrect Answer
    C SLR Correct Answer Incorrect Answer
    D Bank Rate Correct Answer Incorrect Answer
    E Reverse Repo Rate Correct Answer Incorrect Answer

    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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