Q. 255.0( 1 Vote )

Explain how 'Reverse Repo Rate' can be helpful in controlling credit creation.

Answer :

● Reverse repo rate is the rate of interest paid by the central bank on the deposits made by the commercial banks.


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


● If the reverse repo rate is increased, the commercial banks are encouraged to make more deposits with the central bank.


● So, the funds availablewith the commercial bank also decreases.


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


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