Reverse Repo Rate – Reverse repo rate is the rate at which central bank of a country borrows money from commercial banks. Reverse repo rate is fixed by the central bank of the country. To control the excessive money supply, central bank will increase the reverse repo rate. It motivates the commercial banks to lend to central bank and reduces the availability of funds with the commercial banks to create credit.
Open Market Operations – Open market operations refer to buying and selling of government securities by central bank from/to commercial banks. To control the excessive money supply, central bank of the country sells government securities to the commercial banks. This reduces the reserve of commercial banks and adversely affects commercial banks ability to create credit. As a result, money supply decreases in the economy.
