Question
Download Solution PDFIf the inflation in an economy is rising steadily, the Central Bank might _____
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDF- If the inflation in an economy is rising steadily, the Central Bank might increase the repo rate.
- Repo Rate - It is the rate at which the Reserve Bank of India (RBI) lends short term money to banks.
- Reverse Repo Rate-As the name suggests, it is the reverse of the Repo Rate. It is the rate at which the Bank lends short term money to the Reserve Bank of India.
- In the event of inflation, the RBI increases the repo rate and this acts as a disincentive for banks to borrow from the RBI.
- This ultimately reduces the money supply in the economy and hence helps in handling inflation.
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