Repo rate is the rate at which the Reserve Bank of India (RBI) lends money to commercial banks. It is one of the most important tools used by the RBI to regulate the country’s economy. The repo rate acts as a benchmark for all other interest rates in the economy.

Impact of RBI Repo Rate

Basically, the RBI charges the commercial banks an interest rate called the repo rate to lend them cash. The banks use this cash to maintain their reserve requirements and provide loans to their customers. This process is known as repurchase agreements or repos. When the RBI increases the repo rate, it becomes more expensive for banks to borrow from the central bank.

The increased repo rate can directly impact the EMI (Equated Monthly Installment) paid by the borrowers for their loans. This happens because the commercial banks pass on the increased cost of borrowing from the RBI to their customers in the form of higher interest rates on loans, causing the EMI to go up.

Increased repo rates not only affect the customers who have taken loans, but it also affects the economy at a macro level. The increased repo rate results in the reduction of money supply in the economy, as the commercial banks find it expensive to borrow from the RBI. It also leads to an increase in the cost of borrowing, which slows down the pace of economic growth.

Conclusion

To sum up, the repo rate is an essential tool that the RBI uses to regulate the country’s economy. The increased repo rate has a direct impact on the EMI paid by borrowers and can also affect the macro-level economic growth of the country. That’s why it’s crucial to keep an eye on the repo rates set by the RBI and adjust accordingly.