Impact of Reverse Repo Rate on the Common Man & Economy

Impact of Reverse Repo Rate on the Common Man & Economy

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The majority of the country is always concerned about rising inflation. The rising rate of inflation drives up the cost of essential goods and food. By raising the reverse repo rate, the RBI drains the financial system of excess cash. Since the reverse repo rate is going up, more and more banks will start giving the Reserve Bank of India too much money. The financial market's supply of money will decrease as a result. Inflation will also fall as a result of the market's decreased supply of money. The common man benefits from a lower rate of inflation due to an increased reverse repo rate.

Reduction in the Rate of Reverse Repo - With the lesser speculation choices accessible to banks because of diminished turn around repo rate, banks acquiring on venture will decrease. Inflation rises as a result of this gradually increasing market money supply. The ordinary person's life is impacted by rising inflation.

Impact on the Economy - The Reserve Bank of India raises the reverse repo rate to control inflation and get rid of excess liquidity in the financial system. Inflation reduction is the Reverse Repo Rate's most significant effect. India's monetary policy has prioritized inflation control for a considerable amount of time. The Reserve Bank raises the Reverse Repo Rate when it wants to tighten credit. When the Central Bank raises the reverse repo rate, commercial banks deposit more money, leaving less money available for lending. When there is less liquidity, banks raise their lending rates because there will be less money available.

Thus, customers are left with the main decision of costlier getting from banks. As a result, borrowing is discouraged, leaving individuals with less money available for purchases. In the market, this will result in an imbalance between supply and demand for commodities. The entrepreneurs will be compelled to reduce the prices of their products because there will be a greater variety of goods and services available but fewer people will use them. Inflation will fall as a result of this. The applicable interest rates of various banking products, including mortgages, loans, and savings, can be significantly affected by variations in the repo rate and reverse repo rate-