BANKING AFFAIRS

Detailed explanation-1: -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.

Detailed explanation-2: -When the interest rate is high, the supply for money is less, and hence inflation decreases, which means supply is decreased. In contrast, when the interest rate is decreased or low, the supply of money will be more, and as a result, inflation increases, which means that demand is increased.

Detailed explanation-3: -There are four basic strategies that central banks have used to control and reduce inflation: exchange-rate pegging; monetary targeting; inflation targeting; and.

Detailed explanation-4: -Higher interest rates encourage saving and discourage borrowing and, in turn, spending. In response, companies increase their prices more slowly or even lower them to encourage demand. This reduces inflation.

Detailed explanation-5: -When less cash is being spent, money supply tightens and demand for goods drops. Lower demand tends to decrease the price of goods, making them cheaper and lowering inflation. Lowering the base interest rate does the opposite and increases inflation.