Explain the concept of ‘repo rate’ in monetary policy. |.

Question
  • A. The rate at which banks borrow from the central bank
  • B. The rate at which the government borrows from banks
  • C. The rate at which individuals borrow from banks
  • D. The rate at which banks lend to the central bank
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correct Answer ( A )

The repo rate is the rate at which the central bank lends money to commercial banks against the security of government securities . It is a crucial tool in monetary policy, used to influence the overall cost of borrowing in the economy . When the repo rate is increased , borrowing becomes more expensive for commercial banks , which in turn leads to higher interest rates for businesses and consumers , which can help reduce inflation by stimulating economic growth , but potentially leading to increased inflation .

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2025-03-24T19:39:37+00:00 2 views