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Question : 18
Total: 49
As per the following news published in The Hindu' on 6 th
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.
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.
Solution:
It points out that RBI has increased the Repo rate by 50 basic points.
Repo is repurchase option rate. It is the rate at which Central Bank of a country gives loan to commercial bank for short period of time.
Likely cause: RBI has raised Repo rate to control inflationary pressure in the economy. It may help reducing money supply or liquidity in the economy.
Consequence: Due to increase in Repo rate, market rate of interest will also rise, Cost of capital will rise and demand for credit will fall. It will further lead to fall in aggregate demand and fall in price level in the economy.
Repo is repurchase option rate. It is the rate at which Central Bank of a country gives loan to commercial bank for short period of time.
Likely cause: RBI has raised Repo rate to control inflationary pressure in the economy. It may help reducing money supply or liquidity in the economy.
Consequence: Due to increase in Repo rate, market rate of interest will also rise, Cost of capital will rise and demand for credit will fall. It will further lead to fall in aggregate demand and fall in price level in the economy.
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