Which of the following statements is are correct regarding Negative rate policy a tool used by Centr...........

Economic Affairs Money Supply and Monetary Policy

Download Solution PDF

Which of the following statements is/are correct regarding Negative rate policy, a tool used by Central banks?

1. It aims to boost lending in the economy.

2. It helps to induce economic growth in the country.

3. It may also gives country’s export a competitive advantage.

Choose the correct answer using the codes below-

1 and 2 only

1 and 3 only

1 only

1, 2 and 3

छोटे Courses बड़े Results

Master Money Supply and Monetary Policy

Prepare through Micro-courses

Try Now

Explanation:

Under a negative rate policy, financial institutions are required to pay interest for parking excess reserves with the central bank. That way, central banks penalise financial institutions for holding on to cash in hope of prompting them to boost lending.

Aside from lowering borrowing costs, It can help weaken a country’s currency rate by making it a less attractive investment than that of other currencies. A weaker currency gives a country’s export a competitive advantage and boosts inflation by pushing up import costs.