How does monetry policy in india effects economy?
Monetry policy is made by the RBI thru various tools like Repo,reverse repo, bank rate, SLR etc.
Suppose dere is too much inflation (price rise) in the market because people have more cash in hand and only few products in market.
So RBI changes those numbers in a way that banks have less money to give as loans to people. Obviously the banks will charge higher interest rates on their loans, this is called tightening of the moneytary policy / dear money policy.
Reverse of it, is Cheap money policy i.e. when RBI feels that people should get loans at cheap rate so that dere is boost in demand.
By repo m reverse repo….it bans the inflation n side by side prevents from market failure.it controls the action of RBI ,hence it decreases or increases rate of interest of analysing all issues of market structure .
So RBI changes those numbers in a way that banks have less money to give as loans to people. Obviously the banks will charge higher interest rates on their loans, this is called tightening of the moneytary policy / dear money policy.
Reverse of it, is Cheap money policy i.e. when RBI feels that people should get loans at cheap rate so that dere is boost in demand.
By repo m reverse repo….it bans the inflation n side by side prevents from market failure.it controls the action of RBI ,hence it decreases or increases rate of interest of analysing all issues of market structure .
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