Question

What is Repo Rate?

Hint:

Think of Repo Rate as the "benchmark" interest rate.
An increase in Repo Rate is a signal of a "Dear Money Policy" (to curb inflation), while a decrease signals a "Cheap Money Policy".

Answer 1

Step 1: Understanding the Concept:
Repo rate is a tool of monetary policy used by the central bank to control liquidity and inflation in the economy.
Step 2: Detailed Explanation:
- When the central bank increases the Repo Rate, it becomes more expensive for banks to borrow money.
- This leads to higher interest rates for consumers, reducing money supply and controlling inflation.
- Conversely, a lower Repo Rate encourages banks to borrow more and lend more to the public, stimulating economic growth.
It is a short-term lending rate.
Step 3: Final Answer:
Repo rate is the interest rate at which commercial banks borrow short-term funds from the Reserve Bank of India.