Explain the role of reverse repo rate in controlling money supply
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Reverse repo rate means rate at which commercial Bank fund their money to RBI
During inflation, reverse repo rate is increased . commercial Bank fund more money to RBI and left less cash reserve with them...through this.. credit creation power decreases....which means less money with the public..
this corrects inflation...
during deflation it is lowered
During inflation, reverse repo rate is increased . commercial Bank fund more money to RBI and left less cash reserve with them...through this.. credit creation power decreases....which means less money with the public..
this corrects inflation...
during deflation it is lowered
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