Q. 265.0( 1 Vote )

Explain how

Answer :

● Repo rate is the rate of interest at which the central bank lends money to the commercial banks for a short period of time.

● Repo rate can be very useful in controlling credit creation.

● If the repo rate is increased, the cost of borrowing becomes costlier than before.

● So, the banks increase their rate of interest in return.

● The cost of borrowing increases for the people and they borrow less.

● Thus, the banks reduces its level of credit creation.

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