Key Terms @militarychoicebog Repo and Reverse Repo Rate: | Military Choice

Key Terms @militarychoicebog

Repo and Reverse Repo Rate:
◦ Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds. Here, the central bank purchases the security.
◦ Reverse repo rate is the rate at which the RBI borrows money from commercial banks within the country.

Bank Rate:
◦ It is the rate charged by the RBI for lending funds to commercial banks.

Marginal Standing Facility (MSF):
◦ MSF is a window for scheduled banks to borrow overnight from the RBI in an emergency situation when interbank liquidity dries up completely.
◦ Under interbank lending, banks lend funds to one another for a specified term.

Open Market Operations:
◦ These are market operations conducted by RBI by way of sale/purchase of government securities to/from the market with an objective to adjust the rupee liquidity conditions in the market on a durable basis.
◦ If there is excess liquidity, RBI resorts to sale of securities and sucks out the rupee liquidity.
◦ Similarly, when the liquidity conditions are tight, RBI buys securities from the market, thereby releasing liquidity into the market.
◦ It is one of the quantitative (to regulate or control the total volume of money) monetary policy tools which is employed by the central bank of a country to control the money supply in the economy.

Government Security:
◦ A G-Sec is a tradable instrument issued by the Central Government or the State Governments.
◦ It acknowledges the Government’s debt obligation. Such securities are short term (usually called treasury bills, with original maturities of less than one year- presently issued in three tenors, namely, 91 day, 182 day and 364 day) or long term (usually called Government bonds or dated securities with original maturity of one year or more).

Inflation:
◦ Inflation refers to the rise in the prices of most goods and services of daily or common use, such as food, clothing, housing, recreation, transport, consumer staples, etc.
◦ Inflation measures the average price change in a basket of commodities and services over time.
◦ Inflation is indicative of the decrease in the purchasing power of a unit of a country’s currency. This could ultimately lead to a deceleration in economic growth.

Consumer Price Index:
◦ It measures price changes from the perspective of a retail buyer. It is released by the National Statistical Office (NSO).
◦ The CPI calculates the difference in the price of commodities and services such as food, medical care, education, electronics etc, which Indian consumers buy for use.

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