Advantages and disadvantages of having a central bank that is independent and also uses interest rates as its instrument?

Answer 1

People need to have minimum knowledge about the govt. policies and impact of these policies on the market and in turn how it is helpful to the citizens of any country. Decrease repo rate is one of the most impacted policies of any government. Although the govt. may change it from time to time based on the countries economical and marketing conditions, there is a purpose behind the decrease in repo rate to make adjustable liquidity with the banks in the market to help the individuals/organizations by providing loans on a moderate interest rate.

People may not lead a life of good taste if they are not in a position to meet their needs. People/organizations approach banks when ever they need loans for the continuity of their activities. If banks do not able to provide loans and fail to maintain sufficient capital with them, there is a chance of high unemployment in the country and easy ways of getting loans from government institutions or banks can really help a lot. In such situations, government decreases the repo rate to make more liquidity with the banks and then banks can be able to lend money to individual/organizations to run their necessary activities/business. Decreasing Repo rate, meaning the government decrease interest rates on the money lending to the banks. So banks do not require to pay more interest to the government and at the same time they can have more money with them to help people for the continuity of their activities/business. In this way liquidity can be generated in the market and financial crisis can also be gradually eliminated.