Repo rate
The interest rate at which the RBI lends short-term money to banks. Raise it to cool the economy, cut it to spur borrowing. It's the headline policy lever.
Vocabulary · plain-English economics
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Reverse repo / SDF
What banks earn for parking spare cash with the RBI. The Standing Deposit Facility (SDF) is the modern floor of the rate corridor — no collateral needed.
MSF
Marginal Standing Facility — the emergency window where banks borrow from the RBI above the repo rate. It forms the ceiling of the rate corridor.
LAF corridor
The band the overnight rate moves in: SDF (floor) → repo → MSF (ceiling). Currently about 50 basis points wide. The RBI steers the call rate inside it.
CRR
Cash Reserve Ratio — the slice of deposits banks must keep as cash with the RBI, earning nothing. Raising it pulls money out of the system.
SLR
Statutory Liquidity Ratio — the share of deposits banks must hold in safe assets like government bonds, before lending the rest.
OMO
Open Market Operations — the RBI buying or selling government bonds to add or drain durable liquidity (and nudge yields).
VRR / VRRR
Variable Rate Repo / Reverse Repo — flexible auctions the RBI uses to inject (VRR) or absorb (VRRR) cash and fine-tune the overnight rate.
CPI
Consumer Price Index — the cost of a typical household's basket. The year-on-year change is retail inflation, the RBI's main target (4% ±2%).
WPI
Wholesale Price Index — prices at the producer/wholesale stage. It excludes services and moves before CPI; no longer the policy target.
Core inflation
Inflation stripped of volatile food and fuel. It shows the underlying trend central banks watch through short-term price spikes.
Base effect
When a number looks high or low only because the comparison month a year ago was unusually low or high — an arithmetic illusion, not a new trend.
GDP
Gross Domestic Product — the total value of goods and services an economy produces in a period. The broadest gauge of economic size.
GVA
Gross Value Added — output minus input costs, measured by sector. GDP equals GVA plus net taxes on products; GVA shows where growth comes from.
Potential GDP
What an economy could produce at full, sustainable use of labour and capital. The gap between actual and potential GDP signals slack or overheating.
Fiscal deficit
How much more the government spends than it earns in a year — the gap it must borrow to fill. Watched as a share of GDP.
Revenue deficit
When the government's day-to-day (revenue) spending exceeds its revenue receipts — borrowing to fund consumption, not assets.
Primary deficit
The fiscal deficit minus interest payments. It shows the fresh borrowing need, setting aside the cost of past debt.
Crowding out
When heavy government borrowing pushes up interest rates and squeezes private investment. The opposite — 'crowding in' — can happen when spending boosts demand.
Multiplier
How much total output rises from an initial rise in spending. If people spend a fraction c of extra income, the simple multiplier is 1/(1−c).
Marginal propensity to consume
The share of an extra rupee of income that a household spends rather than saves. Higher MPC means a bigger multiplier.
Paradox of thrift
If everyone saves more at once, demand and incomes fall, so total saving may not rise. Prudent individually, harmful collectively in a slump.
Liquidity trap
When interest rates are so low that extra money is hoarded rather than spent, and rate cuts stop working. Fiscal policy becomes the stronger tool.
IS-LM
A model where the IS curve (goods market) and LM curve (money market) cross to set output and the interest rate in the short run.
IS-MP
A modern update of IS-LM where the central bank sets the interest rate directly (a monetary-policy rule) instead of fixing the money supply.
Phillips curve
The short-run trade-off between unemployment and inflation: lower unemployment tends to push inflation up. It flattens or breaks down over the long run.
NEER
Nominal Effective Exchange Rate — the rupee's value against a trade-weighted basket of currencies, before adjusting for inflation.
REER
Real Effective Exchange Rate — NEER adjusted for relative inflation. It's the truer measure of export competitiveness.
Depreciation
A fall in a currency's market value against others. It makes imports dearer and exports cheaper; sharp, disorderly falls signal stress.
Current account deficit
When a country imports more goods, services and income than it exports — it must attract foreign capital to cover the gap.
Balance of payments
The full record of a country's transactions with the world: the current account (trade, income) plus the capital and financial account.
Impossible trinity
A country can't have all three at once: a fixed exchange rate, free capital flows, and independent monetary policy. Pick two.
G-Sec / bond yield
Government Securities are bonds the state issues to borrow. Their yield is the return to investors and a benchmark for interest rates across the economy.
Quantitative easing
When a central bank creates money to buy bonds and other assets, lowering long-term rates once short-term rates are already near zero.
Fiscal consolidation
Bringing down the deficit and debt over time — through higher revenue or lower spending — to put public finances on a sustainable path.
GST
Goods and Services Tax — a single, nationwide indirect tax that replaced a web of central and state levies, taxing value added at each stage.
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