Definition of repo rate

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 What is the Repo Rate



  Definition of repo rate😊

  • It refers to the rate at which the central bank of a country lends money to commercial banks for short-term loans, typically for a period of overnight. This rate is used to control the money supply in the economy. In exchange, the banks pledge securities, like government bonds, as collateral. When the banks pay back the loan, they also pay interest at the repo rate.

Example🚀

Impact on Commercial Banks🔸

  • Commercial banks now have to pay 5% interest when borrowing money from the RBI instead of the previous 4%.

Impact on Consumers🔥

  • If you want a personal loan, home loan, or car loan, you will likely face higher interest rates. For example, if your home loan interest rate was 7%, it might increase to 7.5% or more.

Impact on Inflation🔸

  • When borrowing costs increase, consumers and businesses borrow less, reducing the demand for goods and services.

CONCLUSION👉

  • The repo rate is a key tool used by the central bank to manage the economy, control inflation, and regulate the amount of money in circulation. When the repo rate goes up, borrowing becomes more expensive, which can cool down inflation. When it goes down, borrowing becomes cheaper, which can stimulate economic activity.

Now, the RBI rate has come and gone to 6.25%.


INSTAGRAM LINK

https://www.instagram.com/reel/DGdT9-hzkCG/?igsh=Ymc1NTBnOTNkYWE4

YOU TUBE LINK

https://youtube.com/shorts/aqF-8GitKXs?si=cVC8LFPwGdHLoxBa


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