The Reserve Bank of India (RBI) has left all the key rates unchanged in its recent credit policy. Taking into account the global economic crisis, inflation and growth expectations, the RBI has chalked out its monetary policy. What is a monetary policy?

The RBI announces a monetary and credit policy statement that aims to rein in economic turbulences. It manages money availability, inflation, money supply and interest rates, through its policies and norms.


Here are the key rates that the RBI toggles:

Cash reserve ratio:

Banks are required to retain a portion of funds with the RBI. When the RBI increases this percentage, the amount available with banks comes down. Increasing CRR draws out money from the banking system and controls prices. Home loans become dearer.


Repo rate:

It is the rate at which banks borrow from the RBI. If the RBI reduces the repo rate, it will be cheaper for banks to borrow money. If the repo rate goes up, borrowing gets expensive.


Reverse repo rate:

The RBI can borrow money from banks for a good rate. This is the reverse repo rate. Banks prefer to have their money with the RBI for a competitive rate as money is safer there. When the reverese repo rate is hiked, banks find it attractive to have their money with the RBI, and hence money is drawn out of the system.