Does economic growth demand monetary policy?
Monetary policy is essentially a stabilisation policy. It is not intended to influence the long-term growth potential of the economy, but aims at ironing out the fluctuations in the economy also referred to as business cycles. This is done to minimise fluctuations and ensure a sustainable mix of growth and inflation in the economy. What are the instruments of monetary policy? The central bank can influence the cost of funds and availability of credit in the economy by altering the repo/reverse repo rates, changing the reserve requirements, and engaging in open market operations. Repo and reverse repo… as confusing as identical twins! But they are opposites. Repo is short for repossess or repurchase. Repo rate is the rate that RBI charges the banks when they borrow from it. Repo operations increase liquidity in the system. Reverse repo rate is the rate that RBI offers the banks for parking their funds with it. Reverse repo operations suck out liquidity from the system. Have there been m
