Consider the following monetary tools:

  1. Quantitative easing
  2. Decrease in Reverse repo rate
  3. Increase in statutory liquidity Ratio

Which of the above are likely to increase liquidity in the market?

Answer: [C] 1 & 2 Only

Quantitative easing is an unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply. Reverse Repo rate is the short term borrowing rate at which RBI borrows money from banks. Decrease in reverse repo rate makes the commercial banks to keep fewer amounts with RBI and increase their lending capacity and hence increases the liquidity in the market. Increase in SLR decreases the lending capacity of the banks and hence decreases the liquidity in the market.

This question is a part of GKToday's Integrated IAS General Studies Module