Advertisements
Advertisements
प्रश्न
As per the following news published in ‘The Hindu’ on 6th August, 2022:
'The Monetary Policy Committee (MPC) of the Reserve Bank of India raised the Repo Rate by 50 basis points.'
Identify and explain the likely cause and consequences behind this type of action taken by the Reserve Bank of India.
उत्तर
It states that the RBI has raised the repo rate by 50 basis points.
Repo stands for repurchase option rate. It is the interest rate at which a country's central bank lends to commercial banks for a brief period of time.
Likely cause: The RBI hiked the repo rate to combat inflationary pressures in the economy. It may aid in decreasing the economy's money supply or liquidity.
Consequence: The market rate of interest will climb as the Repo rate rises. Capital costs will grow, but loan demand will shrink. It will also cause a drop in aggregate demand and a drop in the economy's price level.
APPEARS IN
संबंधित प्रश्न
What is a ‘legal tender’? What is ‘fiat money’?
Money supply includes ______.
Who regulates money supply in India?
Money supply is a ______ concept.
______ are called legal tenders.
Initial deposits made by the people from their own resources are called ______.
The monetary policy generally targets to ensure ______.
Speculative demand for money is a function of ______.
Which among the following does not have the application of multiplier?
______ formulates the Monetary Policy in the economy.
“With an objective to reduce inflation, Reserve Bank of India may promote the commercial banks to park their surplus funds with it.”
Discuss the rationale behind the step taken by the Reserve Bank of India.
Read the following text carefully. Answer the given questions on the basis of the same and common understanding:
| On 30th September 2022, the Reserve Bank of India (RBI) raised Repo Rate for the fourth time in a row. The Monetary Policy Committee (MPC) decided to raise the policy rate by 50 basis points `(1 "basis point" =1/100 "th of a percent")`. After this announcement, the new repo rate stands at 5.9%, while the reverse repo rate continues to stand at 3.35%. Commercial banks borrow money from the Central Bank, when there is a shortage of funds. With the surge in the repo rate, borrowings by general public will become costlier. This is because, as RBI hikes its repo rate, it becomes costly for the banks to borrow short term funds from the Central Bank.
As a result, the banks hike the rates at which customers borrow money from them to compensate for the hike in the repo rate. This happens because banks offer loans to retail consumers at an interest rate which is generally, directly proportional to the repo rate. The increase of 0.50 percent in repo rate will lead. to a higher interest rates on loans for borrowers, implying that the Equated Monthly Instalments (EMIS) for repaying the existing loans will also increase. |
- Differentiate between repo rate and reverse repo rate.
- Outline and discuss the measure taken by the Monetary Policy Committee of Reserve Bank of India to control inflation.
Discuss briefly, how this instrument helps in controlling credit, creation by commercial banks.
