Question

In the case of inflation, central banks ____________ repo rate.

• A. Decrease
• B. Increase
• C. Maintains same
• D. Alternately increases or decreases at intervals
• E. None of the above

Answer 1

The correct option is B Increase

In the event of inflation, central banks increase repo rate as this acts as a disincentive for banks to borrow from the central bank. This ultimately reduces the money supply in the economy and thus helps in arresting inflation.