Answer / aditya ratnam , nmims mumbai

Whenever the banks have any shortage of funds they can borrow it from RBI. Repo rate is the rate at which our banks borrow rupees from RBI. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases borrowing from RBI becomes more expensive.

Hence, When the repo rate is hiked, the bank gets loan at a higher interest rate from RBI, and henceforth Banks give loan to retail customer/ corporate customer at a more higher rate, so demand for the loan from the customers of bank decreases decreases and there is less money in the market.

Since, the liquidity of the marked is sucked by increasing Repo Rate, public can't afford to pay more for any particular commodity, and hence the inflation of the economy gets controlled.

Answer / abbas

first we have to know the defition and reasons for raising
of inflaion,then we can say easily the answer
What is Inflation?
Inflation is an increase in the price of a basket of goods
and services that is representative of the economy as a
whole.
What causes Inflation on a whole ?
>The supply of money goes up.
>The supply of other goods goes down.
>Demand for money goes down.
>Demand for other goods goes up.
so here, we concentrate on the
(DEMAND FOR MONEY GOES DOWN),here rbi intention is that to
create the demand to money,when rbi hike the rate of
reporate automatically banks also hike the interest rate on
the loans then customers are not come forward to take a
loans then there is no money in the market obivously, there
is a huge demand to the money in the market and again chain
will follow viz., supply....demand...(life cycle)

Answer / renuka

REPO RATE IS THE RATE AT WHICH CENTRAL BANK OF A COUNTRY LENDS LOANS TO COMMERCIAL BANKS.. BY HIKING THE REPO RATE THE COMMERCIAL BANKS WILL GET LOANS AT HIGHER INTEREST RATE FROM CENTRAL BANK AND THUS THEY WILL PROVIDE LOANS TO THEIR CUSTOMERS AT HIGH INTEREST RATE.. THIS WILL DECREASE THE FLOW OF MONEY IN THE MARKET AND PEOPLE WILL NOT BUY MORE PRODUCTS. THUS, THE DEMAND IN THE MARKET WILL DECREASE AND IT WOULD HELP IN CONTROLLING INFLATION..

Answer / basavaraj m jadegondar

I don't know that the repo rate is being hiked to "control"
inflation. In US
there are 5 states badly hurt by the bad loans given out by
mortgage
companies, and the people lost or are losing their homes to
repossession
because of the baloon payment required. The homes lost 20%
of their value and
taxes increased on those properties. The gov't is trying to
help helple save
their homes (else where would they go, to tent city?). If
the percent
interest goes up by the Fed Govt then there's a good
possibility we will see
inflation. So govt is trying to keep that interest rate at
zero or low until
the US recovers. That also means a person does not get
interest or gets very
low interest on their savings. Still banks are folding, 100
so far in 2009.
See and take heed from what happens when loans are given to
people who can't
repay, who have no job, who don't have steady income or who
don't have ample
downpayment.

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