Repurchasing rate or repo rate meaning is the interest rate at which financial institutions borrow money from India's Reserve Bank. By controlling the repo rate, the apex fiscal body tends to regulate the economy's flow of money. This directly impacts repo-linked housing loans for both new and existing borrowers.
To understand the implication better, individuals need to know more than what is repo rate. Typically, this rate is used as a monetary tool that helps control inflation in the economy. For instance, when RBI slashes this rate, the cost of borrowing funds for financial institutions goes down.
Eventually, this encourages the financial institutions to lower their lending rates and, in turn, helps home loan applicants secure funds at lower rates. This further makes the dream of purchasing the first home more feasible for individuals with limited income.
Conversely, to lower the flow of money in economy, RBI increases this rate and makes borrowing more expensive for both financial institutions and borrowers. In other words, repo is an essential factor that determines how much interest borrowers are likely to repay on their borrower housing loan.
Note that loans linked with repo rates manifest changes in it faster than credit linked with other benchmarks. India's current repo rate stands at 4% after RBI slashed the same in 2020 to boost the cash flow in its economy. Going forward, any increase or decrease in repo rate will impact the borrowing power and repayment capability of intending home buyers significantly.
Additionally Read: Know why RBI Leaves Repo Rate Unchanged
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