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When the Reserve Bank of India reduces the statutory liquidity by 50 basis points which of the following is likely to happen UPSC 2015?
SLR is a mechanism used by RBI to regulate liquidity of assets and requires the banks to invest a certain portion of their deposits in RBI approved securities or gold. When SLR is reduced, banks have more money to lend which may lead to decrease in lending rates.
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What is the impact of increase or decrease of SLR by RBI?
The RBI regulates the SLR in its policy meetings with a view to keep a check on inflation and credit growth. An increase in SLR will help in containing inflation, while a decrease in SLR will facilitate economic growth. SLR is prescribed under the Banking Regulation Act, 1949.
What will be the impact if RBI reduces bank rate by 1%?
Purchasing power of individual will increase, in result demand for the goods will increase, supply will meet the demand.
When RBI reduces SLR by 50 basic points which of the following is likely to happen?
The correct answer is Scheduled Commercial Banks may cut their lending rates.
Under what circumstances RBI will reduce bank rate?
Suppose the country is going through a cash crunch. In this case, RBI will reduce the repo rate to help banks borrow more and make loans available to the public at reduced rates. Now, if the country’s economy is experiencing inflation, RBI will increase the reverse repo rate to limit borrowings by commercial banks.
When SLR is reduced the money supply?
By reducing the level of SLR, the RBI can increase liquidity with the commercial banks, resulting in increased investment. This is done to fuel growth and demand. Compelling the commercial banks to invest in government securities like government bonds.
What happens when SLR increases and decreases?
Impact of SLR If the SLR increases, it restricts the bank’s lending capacity and helps in controlling the inflation by soaking the liquidity from the market. Consequently, banks will have less money available to lend, and they will charge higher interest rates on loans to keep up with their profit margin.
What happens to SLR during inflation?
The Reserve Bank of India increases the SLR at the time of inflation to control bank credit. At the time of recession, RBI decreases the SLR to increase bank credit.
What happens when the required reserve ratio is lowered?
When the Federal Reserve decreases the reserve ratio, it lowers the amount of cash that banks are required to hold in reserves, allowing them to make more loans to consumers and businesses. This increases the nation’s money supply and expands the economy.
What happens when RBI reduces CRR?
When CRR is reduced, more funds are available to banks for deploying in other businesses because they need to keep fewer amounts with RBI. This means that the banks would have more money to play and this leads to a reduction of interest rates on loans provided by the Banks and it increases lendable resources.
