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Aryan patil
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Monkey Adsย โขย 1y
Imagine the RBI is like a big bank for other banks. Banks borrow money from the RBI to give loans to people and businesses. The interest rate the RBI charges banks is called the repo rate. Think of the repo rate as the price tag on borrowing money. When the RBI increases the price tag (raises the repo rate), borrowing from them becomes less attractive for banks. This means banks have less money to lend out, which reduces the overall amount of money circulating in the economy. Less money circulating typically means lower inflation. On the other hand, if the RBI lowers the repo rate, borrowing becomes cheaper for banks. This encourages them to borrow more from the RBI, which increases the money supply. More money floating around can lead to higher inflation. By adjusting the repo rate, the RBI can indirectly control inflation by influencing how much money banks lend out.
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