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Money and Banking — Economics STD 12 Humanities & Commerce — Question

Rajasthan BoardEnglish MediumSTD 12 Humanities & CommerceEconomicsMoney and Banking3 Marks
Question
Explain how 'Repo Rate' can be helpful in controlling credit creation.
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Answer

Repo Rate: Is the rate of interest at which central bank lends money to commercial bank for short period.
Raising Repo Rate makes borrowing by commercial banks costlier. So these banks are forced to raise their lending rates. Since borrowing becomes costly for people, they borrow less. Banks, therefore, create less credit.

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