In December, 2022, the central Bank of India has increased the particular rate to 6.25% for controlling the inflation in India. Identify the name of the tool

Repo rate

The correct answer is option (3) : Repo rate

Repo rate: This is the rate at which the Central Bank lends money to commercial banks for short periods. By increasing the repo rate, the Central Bank makes it more expensive for commercial banks to borrow money. This discourages banks from lending excessively, ultimately reducing the money supply in circulation. A lower money supply can help curb inflation as there's less money chasing the same amount of goods and services.

Cash Reserve Ratio (CRR): While the Cash Reserve Ratio (CRR) is indeed a tool used by central banks to regulate liquidity and money supply, it involves mandating banks to keep a certain percentage of their deposits as reserves with the central bank. Adjusting the CRR affects the amount of money banks can lend, thereby influencing liquidity in the economy. However, the question specifically asks about an action related to increasing a "rate" to control inflation. CRR is not a rate.

Statutory Liquidity Ratio (SLR): Similar to CRR, the Statutory Liquidity Ratio (SLR) is a regulatory requirement that mandates banks to maintain a certain percentage of their deposits in the form of liquid assets. Changes in SLR affect the liquidity position of banks and their ability to lend. However, the question specifically asks about an action related to increasing a "rate" to control inflation. SLR is not a rate.

Reverse repo rate is the rate at which the central bank borrows money from commercial banks. While changes in the reverse repo rate are used by central banks to manage liquidity in the banking system, it is not typically the rate adjusted to directly control inflation. Instead, the reverse repo rate is adjusted to manage short-term liquidity conditions and to anchor the repo rate, which directly influences borrowing costs and inflation control.