Can anybody tell what is the link b/w reporate and
inflation? How these parameters vary???
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Answer / sumbul
when the Central Bank of any country increases their repo
rate ( the rate at which banks borrow from the central bank)
it eventually makes the other banks of the country increase
their prime lending rates (PLRs). when the PLRs increases
the people borrow less from the banks which leads to
reduction in demand which inturn ultimately helps in curbing
the rising inflation.
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Answer / manmohan singh
there is a grate relation between repo rate and the inflation of the country.The banks borrow from central bank at a fix rate of interest rate which is specified by the central bank to control the liquidity position in the market.Central bank decrease repo rate to inflow more liquidity in the market by which the the banks borrow more and lend to the borrower.When borrower borrow more they spend more which generate more inflation becouse the demand of the product would be more but the supply would me same as it was previous.So by this way central bank control inflation.
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