Unit 3 Monetary Control

📘 Day 3: Monetary Control – CRR, SLR, Bank Rate, OMO & SCC

These are the tools RBI uses to manage inflation, liquidity, and the flow of credit in the economy.

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🧠 Key Tools of Monetary Control:

Tool What it Means Impact

CRR (Cash Reserve Ratio) % of deposits banks must keep with RBI in cash Higher CRR → Less money to lend

SLR (Statutory Liquidity Ratio) % of deposits banks must keep in govt. securities, gold, or cash Higher SLR → Less lending capacity

Bank Rate Rate at which RBI lends to banks (long-term) ↑ Bank Rate = ↑ Loan interest rates

Repo Rate Short-term lending rate from RBI to banks Lower Repo = Easier borrowing

OMO (Open Market Operations) RBI buys/sells govt securities in open market Buys = injects liquidity, Sells = absorbs liquidity

SCC (Selective Credit Control) RBI restricts credit against essential goods to stop hoarding Targets speculators in sugar, oil, wheat, etc.

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🎯 RBI Adjusts These Tools To:

Fight inflation (tightens money supply)

Stimulate economy (increases liquidity)

Ensure financial stability

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📌 Real-Life Example:

When RBI raises CRR, your bank has less to lend → credit becomes costly → slows down inflation.

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❓ MCQs to Test Yourself:

1. CRR is maintained by banks in:

a) Govt bonds

b) Cash ✅

c) Gold

d) Mutual funds

2. What happens when RBI lowers the SLR?

a) Liquidity tightens

b) Lending capacity increases ✅

c) Bank Rate rises

d) Inflation drops

3. Open Market Operations (OMO) are:

a) Sale of banking licenses

b) Repo lending to banks

c) Sale/purchase of govt securities ✅

d) Control over foreign currency

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✅ Task for Today:

Memorize the differences between CRR, SLR, Repo & Bank Rate

Think how it affects your branch’s loan disbursal or CASA mobilization

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