Commercial banks acquire money from RBI (reserve bank of India) when they need funds. The commercial banks take money from RBI at a certain rate of interest which is known as the Repo rate. When RBI advances money from commercial banks at a certain rate of interest, that rate known as a reverse repo rate. The repo rate influences the interest rates charged by the banks. Recently, the repo rate has been cut by 25 basis points. Earlier the rate was 6% and now it stands at 5.75%.
The repo rates cut are expected to reduce the home loan EMIs for many.
In the interest of the general public, MCLR (marginal cost of lending rates) regime is formalized by RBI setting the expectations and rules for commercial banks. Each and every bank now is mandated to introduce a new interest rate every month.
Read: What is MCLR?
The repo rates cut are expected to reduce the home loan EMIs for many.
Most commonly for general home loan borrowers, the reduced repo rate translates into low-cost loans. When RBI decreases its repo rate, banks also reduce their interest rates on the loans hence, decreasing the home loan EMIs.
Similarly, with a hike in repo rate, loan for the applicants becomes heftier with an increased interest rate. The banks then acquire funds from the RBI at higher prices, they pass on to the borrowers.
Many times, when RBI slashes the rate, financial institutions take time to decrease their lending rates. However, when there is a hike in repo rate financial institutions quickly increase the interest rates on home loans/
Similarly, with a hike in repo rate, loan for the applicants becomes heftier with an increased interest rate. The banks then acquire funds from the RBI at higher prices, they pass on to the borrowers.
Many times, when RBI slashes the rate, financial institutions take time to decrease their lending rates. However, when there is a hike in repo rate financial institutions quickly increase the interest rates on home loans/
In the interest of the general public, MCLR (marginal cost of lending rates) regime is formalized by RBI setting the expectations and rules for commercial banks. Each and every bank now is mandated to introduce a new interest rate every month.
Read: What is MCLR?
