Monetary Policy Transmission: How Repo Rate Changes Impact the Indian Economy
Economy · 31 Oct 2026 · Source: Internet
Explains the mechanism through which RBI's repo rate adjustments affect inflation, credit growth and overall economic activity.
The Reserve Bank of India (RBI) uses the repo rate—the rate at which it lends to commercial banks—to steer liquidity and control inflation; a cut lowers borrowing costs, while a hike makes credit more expensive.
When the repo rate changes, commercial banks adjust their own lending and deposit rates, influencing consumer spending, investment decisions, and ultimately the demand‑pull component of inflation.
The transmission also works through the exchange rate channel: lower rates can depreciate the rupee, making imports costlier and exports competitive, thereby affecting the current account balance.