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This podcast discusses the Reserve Bank of India's approach to managing liquidity and how they use repo and reverse repo rates. It also addresses the liquidity problem in the banking system and the additional cash reserve ratio requirement imposed by the RBI.
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Quick takeaways
- Reserve Bank of India uses interest rates and the reverse repo rate as levers to control inflation and liquidity in the economy.
- Despite high liquidity and inflation, RBI focused on tweaking the cash reserve ratio (CRR) to reduce excess liquidity in the banking system.
Deep dives
Managing Liquidity and Inflation
The podcast episode discusses how central banks, particularly the Reserve Bank of India (RBI), manage liquidity and inflation in the economy. Central banks use interest rates as a tool to control inflation. By increasing the report rate, commercial banks find it more expensive to borrow money, leading to a decrease in borrowing and demand. However, if banks have excess cash, they may still lend at a low rate. To address this, the RBI can increase the reverse report rate to incentivize banks to deposit their excess funds with the central bank. These levers are used together by the RBI when inflation and liquidity pose concerns.
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Discover
highlights
Listen to the best highlights from the podcasts you love and dive into the full episode