Interplay Between CPI and Repo Rates ( BY RBI )
Hello friends lets understand about CPI & Repo rates friends CPI is an essential tool for RBI as it looks after the monetary policies of the country. The framework by RBI requires it to keep the inflation rate around 4% however it can fluctuate anywhere between 2% and 6%. The primary motive of RBI is inflation control, while it may change from time to time depending on the decision of the monetary policy committee. Knowing what is CPI and how much is the impact becomes important for the central bank. The MPC holds its meeting to decide the repo rate in the economy. Repo rate are decided in tandem with the inflation rate of the economy. Say the inflation in the economy is rising. This means that the general price level prevailing in the market is rising. In such a situation, to arrest inflation, the central bank would want to reduce the money supply in the economy. For this RBI may increase repo rates, which will make it difficult for the banks to borrow ...