The repo rate is closely related to inflation and interest rates: Inflation Control: By adjusting the repo rate, central banks can influence inflation. Raising the repo rate typically reduces inflation by making borrowing more expensive and reducing spending. Lowering the rate can increase inflation by making borrowing cheaper and stimulating spending. Interest Rates: The repo rate directly affects interest rates on loans and deposits. When the repo rate is high, banks raise their lending rates, making loans more expensive. When the repo rate is low, lending rates decrease, making loans cheaper.