As per the state of affairs of the national economy and required amount of cash flow to maintain growth; at the same time contain inflation, credit policy is reviewed by RBI. Some times Bank rate is changed, some times CRR.. All have some tangible effects on the economy with instant effect..
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RBI being the BIG BOSS for all the banks keeps a tab of the money supply in the economy. It controls and regulates the supply by adjusting bank rate, CRR, RPO rates etc. These adjustment are done by announcing its credit policies. By way of credit policies RBI generally tries to achive the following
1) Manage liquidity actively so that the credit demand of the government is met while ensuring the flow of credit to the private sector at viable rates.
2) Keep a vigil on the trends and signals of inflation, and be prepared to respond quickly and effectively through policy adjustments.
3) Maintain a monetary and interest rate regime consistent with price stability and financial stability supportive of returning the economy to the high growth path.