Question
Consider the following statements regarding instruments
of Monetary Policy: I. The Repo rate is the interest rate at which the Reserve Bank provides overnight liquidity to banks. II. The Bank rate is the rate at which the RBI is ready to buy or rediscount bills of exchange or other commercial papers. III. The Cash Reserve Ratio is the average daily balance that a bank is required to maintain with the RBI as a share of such percent of its Net Demand and Time Liabilities (NDTL). Which of the statements given above is/are correct?Solution
Statement I is correct- The Repo rate is the interest rate at which the Reserve Bank provides overnight liquidity to banks against the collateral of government and other approved securities under the liquidity adjustment facility (LAF), Statement II is correct - Bank rate is the rate at which the RBI is ready to buy or rediscount bills of exchange or other commercial papers. The Bank Rate is published under Section 49 of the RBI Act, 1934. Statement III is correct - Cahs reserve ratio is the average daily balance that a bank is required to maintain with the Reserve Bank as a share of such per cent of its Net demand and time liabilities (NDTL) that the Reserve Bank may notify from time to time in the Gazette of India.
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