Question

What is Repo Rate ?

Hint:

When you hear in the news that "EMI will increase," it is usually because the Central Bank has increased the Repo Rate.

Answer 1

Step 1: Understanding the Concept:
"Repo" stands for Repurchasing Option. It is a quantitative tool used by the central bank to control the money supply and inflation in the economy.
Step 2: Detailed Explanation:
Commercial banks borrow from the RBI by selling government securities with an agreement to buy them back (repurchase) at a future date at a predetermined price.
1. To Curb Inflation: The RBI increases the Repo Rate. This makes borrowing expensive for banks, who then increase their lending rates. This reduces demand and slows down inflation.
2. To Boost Growth: During a recession, the RBI lowers the Repo Rate. This makes loans cheaper, encouraging businesses and consumers to spend and invest.
It is usually a short-term lending rate.
Step 3: Final Answer:
Repo rate is the benchmark interest rate at which the Reserve Bank of India lends liquidity to commercial banks against the collateral of government securities.