How do central banks use monetary policy tools to manage inflation and support economic growth, and what are the potential impacts of these tools on the banking sector?
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Interest Rate Adjustments
Lowering rates reduces borrowing costs, stimulating spending and investment.
Raising rates increases borrowing costs, helping control inflation.
Open Market Operations (OMOs)
Buying government securities injects money into the economy, promoting growth.
Selling government securities withdraws money, reducing inflation.
Quantitative Easing (QE)
Purchasing long-term securities to inject liquidity and lower long-term interest rates.
Repo Rates
Lowering the repo rate makes borrowing cheaper for banks, stimulating lending.
Raising the repo rate makes borrowing more expensive for banks, reducing lending.
Reverse Repo Rates
Lowering the reverse repo rate encourages lending by discouraging banks from parking funds with the central bank.
Raising the reverse repo rate reduces liquidity by encouraging banks to park funds with the central bank.
Potential Impacts on the Banking Sector
Interest Rate Adjustments
Lowering rates reduces borrowing costs, stimulating spending and investment.
Raising rates increases borrowing costs, helping control inflation.
Open Market Operations (OMOs)
Buying government securities injects money into the economy, promoting growth.
Selling government securities withdraws money, reducing inflation.
Quantitative Easing (QE)
Purchasing long-term securities to inject liquidity and lower long-term interest rates.
Repo Rates
Lowering the repo rate makes borrowing cheaper for banks, stimulating lending.
Raising the repo rate makes borrowing more expensive for banks, reducing lending.
Reverse Repo Rates
Lowering the reverse repo rate encourages lending by discouraging banks from parking funds with the central bank.
Raising the reverse repo rate reduces liquidity by encouraging banks to park funds with the central bank.
Potential Impacts on the Banking Sector
Interest Rate Adjustments
Lowering rates reduces borrowing costs, stimulating spending and investment.
Raising rates increases borrowing costs, helping control inflation.
Open Market Operations (OMOs)
Buying government securities injects money into the economy, promoting growth.
Selling government securities withdraws money, reducing inflation.
Quantitative Easing (QE)
Purchasing long-term securities to inject liquidity and lower long-term interest rates.
Repo Rates
Lowering the repo rate makes borrowing cheaper for banks, stimulating lending.
Raising the repo rate makes borrowing more expensive for banks, reducing lending.
Reverse Repo Rates
Lowering the reverse repo rate encourages lending by discouraging banks from parking funds with the central bank.
Raising the reverse repo rate reduces liquidity by encouraging banks to park funds with the central bank.
Potential Impacts on the Banking Sector
Interest Rate Adjustments
Lowering rates reduces borrowing costs, stimulating spending and investment.
Raising rates increases borrowing costs, helping control inflation.
Open Market Operations (OMOs)
Buying government securities injects money into the economy, promoting growth.
Selling government securities withdraws money, reducing inflation.
Quantitative Easing (QE)
Purchasing long-term securities to inject liquidity and lower long-term interest rates.
Repo Rates
Lowering the repo rate makes borrowing cheaper for banks, stimulating lending.
Raising the repo rate makes borrowing more expensive for banks, reducing lending.
Reverse Repo Rates
Lowering the reverse repo rate encourages lending by discouraging banks from parking funds with the central bank.
Raising the reverse repo rate reduces liquidity by encouraging banks to park funds with the central bank.
Potential Impacts on the Banking Sector