Question
Download Solution PDFWhich of the following is the instrument of monetary policy used by the RBI?
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFThe correct answer is Bank rate.Key Points
- The instrument of monetary policy used by the RBI is the Bank rate.
- Bank rate is the rate at which RBI lends money to commercial banks for meeting their liquidity needs.
- This rate is used by RBI to influence the lending rates of commercial banks and thereby control the money supply in the economy.
Additional Information
- Base rate is the minimum rate below which banks cannot lend to their customers and is determined by individual banks based on their cost of funds.
- It is not a tool of monetary policy used by RBI.
- Call rate is the rate at which banks borrow funds from each other for short periods of time and is used for managing their day-to-day liquidity needs.
- It is not a tool of monetary policy used by RBI.
- Discount rate is the rate at which commercial banks can borrow money from RBI by pledging their securities as collateral.
- It is not a commonly used tool of monetary policy by RBI.
Last updated on May 28, 2025
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