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If RBI cuts down the repo rate, it will have the following impact:
1. It may benefit the borrowers as EMIs (equated monthly instalments) will decrease.
2. It will increase investment in the economy.
3. It may lead to inflation in the country.
Which of the above statements are correct?
1. It may benefit the borrowers as EMIs (equated monthly instalments) will decrease.
2. It will increase investment in the economy.
3. It may lead to inflation in the country.
Which of the above statements are correct?
- a)1 and 2 only
- b)2 and 3 only
- c)1 and 3 only
- d)1, 2 and 3
Correct answer is option 'D'. Can you explain this answer?
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Most Upvoted Answer
If RBI cuts down the repo rate, it will have the following impact:1. I...
The repo rate is the rate at which RBI lends to banks. When the rate is decreased, it encourages banks to borrow more from the central bank and money supply in the economy increases.
Increased availability of credit with banks facilitates lower EMI.
Investments increase as a result of cheap loans.
Increased money supply can also result in inflation.
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Community Answer
If RBI cuts down the repo rate, it will have the following impact:1. I...
• All statements are correct
Repo Rate
• When banks need money they can borrow from the RBI against their surplus government securities at a fixed interest rate. This rate is known as the repo rate.
• Basically, this is an abbreviated form of the ‘rate of repurchase’ and in western economies, it is known as the ‘rate of discount’.
• The higher the repo rate, the higher the cost of short-term money to the banks and vice versa. Generally, whenever the repo rate is raised, banks pass the burden on to customers.
• If the repo rate is lowered, then banks can potentially charge lower interest rates on the loans taken by borrowers and vice versa.
• Thus, it will benefit the borrowers as EMIs (equated monthly instalments) will decrease.
• It will inject liquidity over a period. It has several purposes to serve— a stronger money market, stability, and better costing and signalling of the loan products. Injecting liquidity may lead to inflation in the country.
• Recently, the Reserve Bank of India (RBI) has decided to lower the interest rate for the fourth consecutive policy review as it reduced the repo rate by 35 bps to 5.40%.
Repo Rate
• When banks need money they can borrow from the RBI against their surplus government securities at a fixed interest rate. This rate is known as the repo rate.
• Basically, this is an abbreviated form of the ‘rate of repurchase’ and in western economies, it is known as the ‘rate of discount’.
• The higher the repo rate, the higher the cost of short-term money to the banks and vice versa. Generally, whenever the repo rate is raised, banks pass the burden on to customers.
• If the repo rate is lowered, then banks can potentially charge lower interest rates on the loans taken by borrowers and vice versa.
• Thus, it will benefit the borrowers as EMIs (equated monthly instalments) will decrease.
• It will inject liquidity over a period. It has several purposes to serve— a stronger money market, stability, and better costing and signalling of the loan products. Injecting liquidity may lead to inflation in the country.
• Recently, the Reserve Bank of India (RBI) has decided to lower the interest rate for the fourth consecutive policy review as it reduced the repo rate by 35 bps to 5.40%.
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If RBI cuts down the repo rate, it will have the following impact:1. It may benefit the borrowers as EMIs (equated monthly instalments) will decrease.2. It will increase investment in the economy.3. It may lead to inflation in the country.Which of the above statements are correct?a)1 and 2 onlyb)2 and 3 onlyc)1 and 3 onlyd)1, 2 and 3Correct answer is option 'D'. Can you explain this answer?
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