RBI cuts its repo rate by 25 basis points.

TNPSC Daily Current Affairs - August, 2017 - TNPSCGURU.IN

The Reserve Bank of India has announced a cut in the repo rate by 25 basis points which bring down to 6% from 6.25 %. This is the lowest rate since 2010 due to lower retail inflation. The decision was taken six-member Monetary Policy Committee headed by RBI Governor Urjit Patel.

About Repo Rate: 

• Repo Rate is the rate at which commercial banks borrow money from Reserve bank of India against the securities or bonds of commercial bank. 
• RBI used the Repo rate to control Inflation. If repo rate increased bank will borrow less and the credit creating capacity of bank will come down which ultimately reduce the money supply in the economy, thus help in controlling inflation. 
• If RBI Increase its Repo rate, the reverse will happen. 

About Reverse Repo Rate: 

• Reverse Repo Rate is the rate at which Reserve Bank of India borrow money from Commercial Bank. In simple it is the rate offered by RBI to other banks to deposit their money in RBI.
• When the commercial banks generate excess money, they will choose to deposit money in RBI if the Reverse Repo rate is high comparing to interest rate on lending loans to customers. Because depositing money in RBI is safer comparing lending to customers.
• So it will make Customer to opt loan for higher interest for lesser money, which will control the supply of money in economy

Inflation and Deflation.

The general price of Goods and services in an economy increases sustainably is called Inflation.

The general price of Goods and Services of the economy decreases sustainably is called Deflation.