Q. Consider the following statements about quantitative instruments of monetary policy:
1.The Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) are tools used to control liquidity and credit creation by banks.
2.The Repo Rate and Reverse Repo Rate are tools through which the RBI manages short-term borrowing and lending with commercial banks.
Which of the statements given above is/are correct?

[A] 1 only

[B] 2 only

[C] Both 1 and 2

[D] Neither 1 nor 2

Answer: C
Notes:

Explanation:

  • CRR: Percentage of total deposits banks must hold as reserves with the RBI—reduces lendable funds.
  • SLR: Percentage of deposits banks must maintain in liquid assets (like gold, government securities)—controls credit growth and liquidity.
  • Repo Rate: Rate at which the RBI lends to banks (injects liquidity).
  • Reverse Repo Rate: Rate at which the RBI borrows from banks (absorbs liquidity).
  • These are key quantitative tools used by the RBI for liquidity management and credit control.

Source: Laxmikant (Polity)

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