REPO RATE AND ITS EFFECT ON GDP: AN EMPIRICAL INDIAN EXPERIENCE

The main purpose of this research paperis to study about the impact of monetary policy instrument of Repo Rate on the GDP growth rate. This paper analyses the changes that have taken place in the Repo Rate and quarterly GDP growth rate in India for the period 2001-2011. Monetary Policy refers to a policy introduced by the Central Bank or monetary authority to control money supply with an overall objective of maintaining price stability and promotion of economic growth. Since, independence, the RBI has been using different policy instruments to achieve the above objectives of monetary policy. During the period 1951-1990, the RBI has been using Bank rate, CRR and SLR for achieving the above objectives. During 1990s, when the government of India initiated economic reforms of liberalisation, privatisation and globalisation, bank rate was still considered and used as a significant monetary policy instrument. But, with the recommendations of Narsimhan Committee, Repo Rate went on to become the most significant monetary policy instrument in India's Monetary Policy. This research paper uses Granger causality Test. This test is widely used in Econometrics to study the time series data. The test results shows that whenever there is change in the Repo Rate introduced by the RBI, it brings about a significant change in the Quarterly growth rate of GDP.