Topic: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.
5. What is Repo Rate? What is the macroeconomic impact of raising the Repo Rate? Do you think hiking Repo rate by RBI in the current global economic scenario a good move? Examine. (250 words)
Difficulty level: Moderate
Reference: Financial Express , Indian Express
Why the question:
Interest rates in the banking system are set to go up after the Reserve Bank of India (RBI) on Wednesday (May 4) jacked up the Repo rate, the main policy rate, by 40 basis points to 4.40 per cent and the cash reserve ratio (CRR) by 50 basis points to 4.50 per cent to suck out liquidity and bring down the elevated inflation.
Key Demand of the question:
To write about Repo rates, macroeconomic impact of its hike and opinion regarding the recent hike.
Directive word:
Examine – When asked to ‘Examine’, we must investigate the topic (content words) in detail, inspect it, investigate it and establish the key facts and issues related to the topic in question. While doing so we should explain why these facts and issues are important and their implications.
Structure of the answer:
Introduction:
Begin by defining Repo rate.
Body:
First, write in detail about the various macroeconomic impact of raising Repo rates – inflation, lending rate, saving and Forex etc.
Next, write about rationale behind raising of Repo rate in the current global economic scenarios. Examine as to how it seeks to address the various issues and also mention any potential shortcomings.
Conclusion:
Conclude with a balanced opinion regarding the hike in Repo rate by RBI.
