RBI so what is repo rate rapid rate or repurchase rate is the key monetary policy rate of interest at which the Reserve Bank of India lends short-term money to banks the aim is to control credit availability inflation and economic growth repo rate is actually the primary tool in the RBI's monetary and credit policy typically when the central bank raises the repo rate the cost of borrowing funds goes up for banks which in turn leads to banks hiking the interest rate it charges its customers similarly when RBI cuts the repo rate banks can borrow funds at lower rates .
.png)
And in turn reduce interest rates charged on your loans which is why interest rates on home loans car loans and other kinds of borrowings go up and down based on the direction of repo rate change similarly banks and just savings account fix deposit returns based on this crucial benchmark let's explain this with the help of a simple example let's assume that your loan amount is rupees 50 lakhs at an interest rate of 8.5% for 15 years repo rate movements would typically impact your EMI and the overall interest burden a 0.5 percent cut in repo rate and assuming it is fully transmitted to the borrower will result in a reduced EMI of about rupees 1400 and a lower interest burden of about rupees 2.6 lakhs over the 15 year period for an increase of repo rate by an equal margin ie of 50 basis points the EMI and the interest burden will approximately increase .
Rupees 1400 and rupees 2.6 lakhs respectively so the next time when RBI cuts the repo rate you as a borrower stand to gain in terms of lower BMIs while any reported increase will increase your monthly installments on the loan different types of lending and borrowing under repo rate overnight repo a repo transaction for a d is known as an overnight repo in such an agreement banks sell securities to the RBI for money and repurchases those the Following day thus returning the money to the central bank term repo includes a time period of more than one day the usual duration of term repo or variable rate term repo is seven days 14 days and 28 days the RBI normally announces the term repor action of the amount as and when there is a need of funds by the banks for a duration of more than a day reverse repo rate reverse repo rate is the opposite of rapid rate the RBI borrows money at this rate from .
The banks for a short term in other words the banks park their excess funds with the central bank at this shade often for one day the banks earn an interest rate on government securities purchased from the RBI for the given period the repo rate always stands higher than the reverse repo rate and the spread between the two is RBIs income who pixels wrapper rate the RBI governor presides over the meeting of the monetary policy committee wherein .
The repo rate for the following term is decided how exactly does bank lending and borrowing from RBI work our way a lends money to banks for short term generally against government securities RBI lends money to banks also in case of shortfall of funds it is usually a short term borrowing and lending exercise through which the RBI purchases bonds from commercial banks with an agreement to sell them back at a fixed rate how rapid rate and reverse repo rate are .
Used to control inflation and money supply since one of the primary goals of adjusting repo rate is to control inflation in an ideal preset range the central bank's decision also indirectly impacts manga or the cost of day-to-day items when the RBA keeps repo rate high banks tend to borrow less money from the central bank due to the high cost of funds notably the reverse repo rate is also high in tandem with the repo rate this incentivizes banks to keep more of .
Their money with the RBI due to higher income on it conversely when the RBI keeps repo rate low banks can borrow more money from it at low cost in the same way in the reverse repo rate is all solo in line with the repo rate thus the banks are inclined to put less money into the central bank as it would fetch lower returns the less availability of loans due to the high costs of borrowing restricts money supply for furthering .
Economic activity this comes in handy when the inflation is high by obvious target standards often this comes at the cost of some economic growth on the other hand when the inflation is well under control and economic growth is cooling off a bit too much RVM may want to cut repo rate and reverse repo rate to increase the credit availability and reduce the cost of borrowing leaving more money in the hands of entrepreneurs and businesses to fuel economic activity .
.png)
.png)
.png)
.png)
.png)
.png)
.png)
.png)
.png)
