Read the following text carefully : "The Reserve Bank of India (RBI) announced a 50 basis point Repo Rate cut to 5.50% from 6%." In the light of the given text and common understanding, answer the following questions : (i) Identify the economic issue indicated in the above text. (ii) Explain the likely causes and consequences of this step of RBI on the economy.

Question

Accepted Answer

Based on the text about RBI cutting Repo Rate by 50 basis points to 5.50%:

1. This is an expansionary monetary policy
2. Aims to stimulate economic growth
3. Reduction in Repo Rate decreases cost of borrowing
4. Banks will reduce their lending rates
5. Borrowing becomes cheaper
6. Consumption and investment increase
7. Aggregate demand increases
8. Money supply increases
9. Economic growth is stimulated

The 50 basis points cut is significant and indicates the central bank's commitment to supporting economic growth. This will have a positive impact on the economy through lower interest rates and increased credit availability.