The repo rate, set by a central bank like the RBI in India, is a powerful tool to influence economic activity, Here are ways it impacts the economy.
1
A higher repo rate makes borrowing more expensive for banks, leading to higher interest rates for consumers and businesses.
2
By raising the repo rate, the central bank makes borrowing costlier, reducing the money supply in circulation.
3
Higher repo rates often lead to increased interest rates on savings accounts and fixed deposits, for saving and attracting investments.
4
A higher repo rate can make borrowing expensive, potentially discouraging investments and hindering economic growth.
5
A higher repo rate can attract foreign investors seeking better returns, potentially leading to an appreciation of the domestic currency.
6
By influencing borrowing costs, investment, and consumer spending, the repo rate can significantly impact economic growth.
7
Lower repo rates lead to cheaper loans, potentially encouraging consumers to borrow and spend more.