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Which instrument of monetary policy is used by the RBI to control inflation by making borrowing expensive for commercial banks?
- a)Bank rate
- b)Repo rate
- c)Reverse repo rate
- d)Cash Reserve Ratio (CRR)
Correct answer is option 'B'. Can you explain this answer?
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Which instrument of monetary policy is used by the RBI to control infl...
The RBI uses the repo rate as an instrument of monetary policy to control inflation. When the RBI increases the repo rate, it makes borrowing expensive for commercial banks. This encourages banks to lend at higher interest rates, which reduces the availability of money in the economy. By restricting the availability of money, the RBI aims to control inflation. The reverse repo rate, on the other hand, is the rate at which the RBI borrows from commercial banks and can be used to control liquidity in the banking system.
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Which instrument of monetary policy is used by the RBI to control inflation by making borrowing expensive for commercial banks?a)Bank rateb)Repo ratec)Reverse repo rated)Cash Reserve Ratio (CRR)Correct answer is option 'B'. Can you explain this answer?
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