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How RBI controls and regulates money flow in India?

Date: 11 Apr 2012   Posted By: Paresh Gujarati     Group: Opinion About    Category: Miscellaneous   

How RBI controls and regulates money flow in India? When RBI decides to print extra or new currency notes and coins? Who gives this authority to RBI? Till date what amount of total money in terms of currency notes and coils are in market that flow from one place to other place? How RBI control inflation by changing some banking rules?

Author: Suryakant Laxman Raut    19 Apr 2012      Member Level: Gold     Points : 6  (Rs 5)    Voting Score: 2

Reserve Bank of India is central bank of India. This bank is controlling body of all money and all banks in India. This is bank which is control money flow in India.
1)RBI have many weapons to control money flow in India. Interest rates are main from this. briefly discuss here about all rates of RBI that control and regulate money flow in India.
(1)Repo rate and reverse repo rate - This is rate at which banks take money from RBI and Banks give money to RBI. If any bank in India need money for demand of loan then bank can take money from RBI. But bank have to pay interest rate for this money to RBI. This rate is repo rate. This has influence on money flow in India. When bank have more money then bank give money to RBI. This money is taken by RBI at certain rate this rate is reverse repo rate. When there is change in both rates then there is effect on money flow in India. This is mechanism initiated through banks.
(2)CRR - This is cash reserve ratio. This ration is defined as amount of money given to RBI. There is mandatory to all banks. Amount of cash is given to RBI according to what amount of cash bank owns. This ratio is called as cash reserve ratio.
(3)SLR - This is ratio at which bank have compulsory to invest in government security. This is restricting all money from bank to go to people and in system. This ration is statutory liquidity ratio.
2)RBI prints money and currency notes according to demand of cash and there is certain limits. This is depends upon gold reserve at country. RBI can not print money in vague amount. There are rules for printing money. If more money is printed then there is problem like inflation will arise.
3)RBI is separate body for taking action. This bank is authority. This bank have only control of Finance ministry. Finance ministry can advise bank in many matters.
4)RBI changes rate described above and control inflation. Rate of lending and borrowing are main weapons to control money flow in system. If rates of lending and borrowing increased then money from system will automatically goes out of system. Cash reserve ratio is increased then money will go to RBI and not rest in system. This extra money in system is absorbed and inflation is cooled down. This is principle of controlling inflation.

Author: akash    19 Apr 2012      Member Level: Silver     Points : 3    Voting Score: 2

The Reserve Bank of India(RBI), with it's monetary policy and control over money supply
and function of RBI
(1)Repo rate and reverse repo rate
(2)CRR(Cash reserve ratio) current rate is :-6%
(3)SLR(Statutory liquidity ratio) current rate is :-24%
(4)SRR(statutory reserve requirement):- it is the amount of money set aside by banks to be placed in their Statutory Reserve Accounts with BNM(bank negara malaysia) with zero interest.
These are most affecting factors of money flow

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