Why did RBI reduce CRR,SLR and repo rate

RBI recently reduced CRR,SLR and repo rate due to coronavirus. When India’s coronavirus cases increased the share market fell down and India had a stun in growth, so RBI needed to control the downfall and the market, that is why RBI decreased CRR,SLR and repo rate.

What is CRR and SLR? CRR and SLR are ways RBI manages inflation and growth in India through banks. When people and organisations deposit money in the bank, the bank gives away most of the money in the form of loans and takes interest.But before they give away the money in form of loans RBI takes CRR(cash reserve ratio) from the banks in form of cash and tells the bank to keep some amount of money in form liquid assets this is known as SLR(statutory liquidity ratio). When bank gives away the CRR and removes the SLR it is left with some money which it loans to gain interest. RBI can control inflation by increasing CRR and SLR, when RBI does that banks have less money to loan so they increase interest which makes money supply goes down so people try not to spend money which causes demand to go down and so inflation goes down. RBI can control growth by decreasing CRR and SLR, when RBI does that banks get more money so they decrease interest which is when bank gives the loan to companies and people, when the companies get money they start growing so the share market rises and India’s growth increases. So RBI decresed CRR and SLR now so that the market would grow and India would too, but the inflation won’t go up because coronavirus is going on and no one will spend a lot.

What is repo rate and reverse repo rate?
Repo Rate & reverse repo rate are a Liquidity Adjustment Facility. Repo rate is, when the bank does not have enough money for CRR and SLR the bank asks RBI for some money by keeping government securities of same cost as collateral and bank has to give the money back between the repo rate period (usually 1 week) with the interest RBI asks or else RBI can sell the government securities in the open market, and that interest is the repo rate.This is also why we call it sale purchase agreement. Reverse repo rate is when bank has extra money and the bank asks RBI to keep it and RBI keeps its government securities as collateral with the bank, then RBI pays the money with interest to that bank. The way RBI controls inflation and growth by increasing or decreasing the repo rate or reverse repo rate is exactly similar to the way of RBI using CRR and SLR. It has the effect in the same way. Increasing repo rate or reverse repo rate will bring down inflation and decreasing repo rate or reverse repo rate will help in growth or might lead to inflation.