Q. Consider the following:
1.Increase in inflation
2.Increase in the purchase of goods and services
3.Increase in the borrowing cost for banks
Which of the above will be the impact of a hike in repo rate?

[A] 1 only

[B] 2 and 3 only

[C] 3 only

[D] 1, 2 and 3

Answer: C

Explanation – A hike in repo rate means the borrowing cost for banking institutions also rises, which is passed on to account holders in the form of higher loan and deposit interest rates, it will lead to lower purchase of goods and services, will lead to decrease in inflation, etc.

Source: The Times of India