The primary functions of RBI

The primary functions of RBI is:

1.To control the supply of money in the economy i.e how much money is available for the industry or the economy and

2. The cost of credit.’ meaning, and what is the price that the economy has to pay to borrow that money.

These two things (Supply of money and cost of credit) are closely monitored and controlled by RBI. The inflation and growth in the economy are primarily impacted by these two factors.

The various methods employed by the RBI to control credit creation power of the commercial banks can be classified into two groups, viz., quantitative controls and qualitative controls.

Quantitative controls are designed to regulate the volume of credit created by the banking system Qualitative measures or selective methods are designed to regulate the flow of credit in specific uses.

To control inflation and the growth, RBI uses certain tools like CASH RESERVE RATIO, STATUTORY LIQUIDITY RATIO, REPO RATE, and REVERSE REPO RATE

What is SLR ( Statuatory Liquidity ratio )

What is CRR ( cash reserve ratio )

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