● 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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