Why Government wants to decrease Repo rate at the time of Economical crises (crisis) in the market?

Financial crisesGovernment can take control on the market as and when it wants. If they find more money in the market, they will issue some bonds to get back that money and keep market as per the demand of the product and when it finds less money in the market, govt. decreases Repo rate against the loans that The Central Bank provides to banks and banks can lend money to individual/companies on a lesser interest rate.

Repo rate means the Government charges interest rates on the money lending to the banks in the country.

When there are crises (crisis) of equity in the market, banks do not have enough capital/equity with them to lend people. In that case bank won’t be able to provide loans to individuals or organizations, as a result people will suffer with lack of capital help and organizations may not be in a position to continue with their business. As a result citizens may lose their jobs even, companies may drop employees in order to reduce the cost of the company. Until and unless banks will be in a position to lend money to the companies or individuals, citizens will not progress in the society, they can meet their wants and it may lead to more unemployment in the country. In such cases, banks have only two options to make capital with them, one is to increase interest rates on deposits to attract the citizens or to request The Central Bank to lend money for the continuity of the business. These are the only ways to make money with them and this is going to be prime motto of the government to help the banks and in turn helping the individuals and organizations. In such attempts, if banks get enough capital with them in the market, the govt. may decrease the repo rate, meaning decrease the interest rate that The Central Bank charges to banks on lending money. In this process banks will definitely get some liquidity with them and they do not need to pay more interest to The Central Bank. Since they get sufficient capital with them, they can also reduce the interest rates on the deposit as well as on the lending, so that availability of loans can be processed in the market. In this way Financial Crises (crisis) can be eliminated from the market.

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