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Which instrument of monetary policy is used by the RBI to absorb excess liquidity from the banking system?
- a)Repo rate
- b)Reverse repo rate
- c)Marginal Standing Facility (MSF)
- d)Statutory Liquidity Ratio (SLR)
Correct answer is option 'B'. Can you explain this answer?
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Which instrument of monetary policy is used by the RBI to absorb exces...
The reverse repo rate is the instrument used by the RBI to absorb excess liquidity from the banking system. In a reverse repo transaction, banks purchase government securities from the RBI and lend money to the central bank. This helps in draining excess liquidity from the banking system. By increasing the reverse repo rate, the RBI makes it more attractive for banks to park their excess funds with the central bank, reducing the availability of money in the economy. This tool is used to control liquidity and manage inflationary pressures.
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Which instrument of monetary policy is used by the RBI to absorb excess liquidity from the banking system?a)Repo rateb)Reverse repo ratec)Marginal Standing Facility (MSF)d)Statutory Liquidity Ratio (SLR)Correct answer is option 'B'. Can you explain this answer?
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