Do you have any idea about the current repo rate in India? If not, here is a quick article to help you know the basics. Read on!
What is the repo rate?
The repo rate is the rate at which financial institutes borrow from the Reserve Bank of India. It is done by selling off their securities to the RBI. It is done for maintaining liquidity in the event of funds shortage or owing to some statutory measures.
What is the current repo rate in India?
The current repo rate in India is one of RBI’s key tools to keep inflation under check. The current repo rate in India stands at 4%.
What is the significance of the repo rate?
The current repo rate is considered a powerful aspect of the Indian monetary policy. It regulates the money supply, liquidity and inflation level of India.
What’s more, the repo rate levels have a direct impact on the cost of bank borrowings. The higher is the repo rate; the higher is the cost of bank borrowings and vice-versa.
What is a reverse repo rate?
On the other hand, the reverse repo rate is a system to help absorb the market’s liquidity. In turn, it restricts the borrowing capacity of investors.
The reverse repo rate meaning is when the RBI borrows the money from banks in the event of excess liquidity available in the market. It is banks who benefit from it. It happens when they receive interest for keeping their money with the Central Bank.
The changes in repo rate often impact credit facilities such as home loan interest rate is linked to this external benchmark. Now, that you know about the repo rate, you can decide the appropriate time to avail of a home loan.
The RBI increases the reverse repo during high levels of inflation in India. It is a measure to encourage banks to park a higher amount with the RBI to gain more ROIs. But, banks are left with fewer funds to release loans and extend borrowing to customers.
Read Also: What is the Impact of Repo Rate on Home Loans?
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