Multiple choice

Whenever RBI wants to reduce the liquidity in the banking system, it can resort to which of the following?

  1. Increase Repo Rate

  2. Increase Reverse Repo Rate

  3. Reduction in CRR

  4. Reduction in SLR

  5. Increase in SLR
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Reverse Repo Rate is the rate of interest at which the RBI borrows funds from other banks in the short term. An increase in the reverse repo rate can prompt banks to park more funds with the RBI to earn higher returns on idle cash. It is also a tool that can be used by the RBI to drain excess money out of the system.

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