The Reserve Bank of India (RBI) increased the repo rate from 5.25 per cent
GS3Economy · S&T · Environment · Security· Monetary policy, RBI & banking· Prelims + Mains·
Monetary policy and inflation management: a core GS3 topic regarding liquidity and real estate impact.
Why in news
The Reserve Bank of India (RBI) increased the repo rate from 5.25 per cent to 5.5 per cent to combat inflationary pressures and volatile crude oil prices.
Background
RBI Governor Sanjay Malhotra announced a 'calibrated tightening' of monetary policy. The repo rate hike is expected to increase loan costs and impact the residential real estate sector.
Facts for Prelims
- FactRepo rate increased from 5.25 per cent to 5.5 per cent
Prelims practice question
What specific policy action did the RBI announce to manage liquidity and inflation?
- (a)Calibrated tightening
- (b)Quantitative easing
- (c)Fiscal stimulus
- (d)Aggressive expansion
Show answer
Answer: (a) Calibrated tightening — The RBI Governor announced a calibrated tightening of monetary policy to combat inflationary pressures.
For Mains
Q. Analyze the impact of repo rate hikes on the residential real estate sector and private consumption in an economy facing high inflation and volatile crude oil prices.
Dimensions to cover in your answer
- Transmission lag: Time gap between repo rate hikes and actual lending rate adjustments by commercial banks
- Cost of borrowing: Increased interest outgo for home-buyers leading to potential slowdown in real estate demand
- Inflation-Growth trade-off: Balancing price stability against the risk of cooling down industrial and private investment
Keywords: Monetary Policy · Repo Rate · Inflationary Pressure · Calibrated Tightening · Liquidity Management
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