BANKING GENERAL KNOWLEDGE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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To check inflationary pressures in the economy
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To Curb growth of black money
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To encourage rise in interest rates on deposits.
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To make bank loan costiler
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Detailed explanation-1: -Repo and reverse repo rates are used by the RBI to keep a check on inflation in the economy.
Detailed explanation-2: -Similarly, inflation is controlled by RBI by increasing the reverse repo rate, and when the situations are perfect for increasing the inflation, RBI then cuts the reverse repo rate and repo rate so as to inject liquidity into the economy.
Detailed explanation-3: -The Effect of the Repo Rate on the Economy: The Indian monetary policy controls and regulates the repo rate depending upon the market’s liquidity and inflation cash flow. Additionally, the repo rate directly affects the borrowing capacity of banks as the repo rate is higher borrowing capacity of banks gets reduced.
Detailed explanation-4: -Reverse Repo Rate is when the RBI borrows money from banks when there is excess liquidity in the market. The banks benefit out of it by receiving interest for their holdings with the central bank. During high levels of inflation in the economy, the RBI increases the reverse repo.
Detailed explanation-5: -Repo rate is used by monetary authorities to control inflation. Description: In the event of inflation, central banks increase repo rate as this acts as a disincentive for banks to borrow from the central bank. This ultimately reduces the money supply in the economy and thus helps in arresting inflation.