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what are the pros and cons of setting official target interest rates

what are the pros and cons of setting official target interest rates

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Answer #1

A target interest rate is a given level of interest rate like repo rate, overnight lending etc by which central bank wants to influence short term interest rates as monetary policy strategy.

Advantages – improving bank balance sheet

Improves lending capacity of bank

Restricts inflation because higher interest rate decreases money flow

Maintain economic condition good.

Disadvantages-

It is difficult to know and balance economic growth because it is difficult to check how much increase or decrease interest rate.

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