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RBI CREDIT POLICY

What is Deflation, Stagflation, Hyperinflation & Headline Inflation?

What is Deflation, Stagflation, Hyperinflation & Headline Inflation?

What is Deflation?

deflation

Deflation is also known as the opposite of inflation, which refers to a condition “where there is a general decline in the prices of goods and services over a time period which results in the hike of currency purchasing power.” Usually, it is observed that the deflation occurs when the general price level declines due to lower inflation rate (i.e. below 0% or less also called negative inflation rate). During deflation, we buy more goods and services with the same amount as we were buying earlier. Deflation generally occurs due to either reduction in the supply of money or credits or due to direct contractions in spending. These spending may be in the form of a reduction in government spending, personal spending or investment spending. Continue reading

What is Bank Rate? How does change in Bank Rate affect Inflation?

What is Bank Rate?

bank rate

The rate at which the Central Bank of the country (in India, RBI is the central bank) allows commercial banks to lend money to corporate or borrowers against their securities. In other words, we can say that the Bank rate is a rate at which banks borrow short term loan from RBI. The newer terms base rate and prime rate have replaced the term bank rate. As soon as the RBI hikes the bank rate, it will not only directly or indirectly affects the interest rates on deposits, bond issues and mortgages but also increase or decrease in EMI.

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What is Repo Rate? How does change in Repo Rate affect economy growth?

What is Repo Rate?

repo rate

Repo rate (also known as Repurchase rate) is the rate at which the Central Bank of the country (in India, RBI is the central bank) lends shot-term money to the banks against their securities. In other words, we can say that the Repo rate is a rate at which banks borrow money from RBI for short periods up to 7 or 14 days. In India, the Repo rate is a similar instrument of monetary policy to inject liquidity in banking system as the discount rate in the United State.

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What is Reverse Repo Rate? How does change in Reverse Repo Rate affect liquidity system?

What is Reverse Repo Rate?

reverse repo rate

Reverse Repo rate (also known as Reverse Repurchase rate) is the rate at which the Central Bank of the country (in India, RBI is the central bank) borrows shot-term money from the banks. In other words, we can say that the Reverse Repo rate is a rate at which banks lend money to RBI for a short period to manage their excess liquidity. Therefore, it can be said the reverse repo rate is an instrument of monetary policy which RBI uses to absorb liquidity from the bank. Continue reading