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.
Not failure but low aim is crime.
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