Introduction-
REPO Rate in India, The country's Central Bank forms an economic framework. All lenders and financiers follow the rules and guidelines set by the central bank. Every few years the central bank reviews the economy and analyzes whether its goals are being met. These objectives are closely linked to keeping inflation under control.
When a plan is out of line, they plan and make adjustments to achieve their goal. In India, the largest bank is also known as the Reserve Bank of India (RBI). The RBI plans and predicts bank policies. They recently appeared when they increased the repo value by 25 basic points. This is the second time in 4 years that the RBI has increased its repo. Today the rate stands at 6.50% which is 50 points higher than it was 4 years ago which is 6.00%.
What is REPO Rate in India?
The repo rate is the rate at which a central bank borrows money from commercial banks when it fails to maintain a reasonable balance. This balance is determined by the central bank (RBI). When a commercial bank is unable to maintain such a balance, it can borrow money from the RBI with interest.
Why did the RBI raise the Repo rate?
The RBI has raised rates to achieve its goal of keeping inflation by about 4%. With wandering at this rate, a series of events took place. Banks will borrow less money from the RBI as the repo rate is higher. They will therefore have a shortage of credit for the customer. They will borrow the remaining amount at a higher interest rate. So many consumers will avoid taking out a loan and ensure that the need is reduced. This will reduce inflation over time.
Should the increase in this rate be a cause for concern?
Yes. When the RBI raises the Repo rate, commercial banks increase the interest rate on various loans such as personal loans, mortgages, etc. Yes, if your loan has a floating interest rate, then EMI will be updated with market conditions and when the RBI raises the repo rate. So the debt burden on customers is now going to be much higher than before. As the debt burden grows, it may be wise to consider a prepaid or partial loan in advance.
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