Meaning of CRR Rate, Repo Rate and Reverse Repo Rate
What is a CRR rate?
Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks.
Relation between Inflation and Bank interest Rates
Now a days, you might have heard lot of these terms and usage on inflation and the bank interest rates. We are trying to make it simple for you to understand the relation between inflation and bank interest rates in India.
Bank interest rate depends on many other factors, out of that the major one is inflation. Whenever you see an increase on inflation, there will be an increase of interest rate also.
What is Inflation?
Inflation is defined as an increase in the price of bunch of Goods and services that projects the Indian economy. An increase in inflation figures occurs when there is an increase in the average level of prices in Goods and services. Inflation happens when there are less Goods and more buyers, this will result in increase in the price of Goods, since there is more demand and less supply of the goods.
What is a Repo Rate?
Whenever the banks have any shortage of funds they can borrow it from RBI. Repo rate is the rate at which our banks borrow rupees from RBI. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases borrowing from RBI becomes more expensive.
What is a Reverse Repo Rate?
How will it affect the Bank Loan interest rates
Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. Banks are always happy to lend money to RBI since their money are in safe hands with a good interest. An increase in Reverse repo rate can cause the banks to transfer more funds to RBI due to this attractive interest rates. It can cause the money to be drawn out of the banking system.
Due to this fine tuning of RBI using its tools of CRR, Bank Rate, Repo Rate and Reverse Repo rate our banks adjust their lending or investment rates for common man.
Search Our Archives
- Stocks Trading above their 50 day moving average - DMA In Stock Research
- Download free Ebooks based on Technical Analysis In Personal Training
- TOP 100 Stocks with the Highest P/E as on July 14th, 2013 In Stock Research
- TOP 100 Stocks with the Lowest P/E as on July 14th, 2013 In Stock Research
- Charting Pathsala - Your guide to Techincals In Technical Analysis
- NIZ sir activated currency trading with my...In Intraday calls for 19-12-14
- Sham hi cb sir, have mail you please reply....In Intraday calls for 19-12-14
- Suriya Hi cb Wt about aurobindo pharma may...In Intraday calls for 19-12-14
- minu sir, pls. let me know about rel infra....In Intraday calls for 19-12-14
- Ezhil Hi CB, Please let me know next wee...In Intraday calls for 19-12-14
- abhinandan Bangalore Gud evening cb sir. . Itook hdil at 69...In Intraday calls for 19-12-14
- Shiuli HI CB SIR I HAVE BOUGHT KOTAK BANK 122...In Intraday calls for 19-12-14
- Sk Hi cb sir, monday Pfc target and sl?...In Intraday calls for 19-12-14
- Abhijit hi sir , can unitech test above 17 nex...In Intraday calls for 19-12-14