|Explain 'banker to the government' function of the central bank.
|Explain the role of reverse repo rate in controlling money supply.
The Reserve Bank of India acts as a Banker, agent and a financial advisor to the Central Govt.
As banker, it carries out all banking business of the Govt.
(a) It maintains a current account for keeping their Cash Balances.
(b) It accepts receipts and makes payments for the Govt. and carries out exchange and other banking operations.
(c) It also gives loans and advances to the Govt.
Reverse Repo Rate is the rate at which RBI borrows money from commercial banks.
(a) RBI makes use of this tool when it feels that there is excess money supply in the banking system.
(b) Banks are always happy to lend money to RBI as there money is in safe hands with a good interest.
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