What is the effect of increasing the repo rate by the RBI?

What is the effect of increasing the repo rate by the RBI?

Step 1: The Reserve Bank of India (RBI) sets the repo rate, which is the interest rate at which it lends money to commercial banks.
Step 2: When the RBI increases the repo rate, it means banks have to pay more interest to borrow money from the RBI.
Step 3: Because banks pay more interest, they will also charge higher interest rates to their customers for loans.
Step 4: Higher loan interest rates make it more expensive for people and businesses to borrow money.
Step 5: When borrowing is more expensive, people and businesses may borrow less money.
Step 6: With less borrowing, there is less money being spent in the economy, which can help to slow down inflation (the rise in prices).
Step 7: Therefore, increasing the repo rate helps to reduce inflationary pressures.

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