Tuesday, 29 September 2015

Effects of Repo Rate

What is Repo Rate?

When we need money, we take loans from banks, banks charge certain interest rate on these loans. This is called as cost of credit (the rate at which we borrow the money).Similarly, when banks need money they approach RBI. The rate at which banks borrow money from the RBI by selling their surplus government securities to the central bank (RBI) is known as “Repo Rate.” Repo rate is short form of Repurchase Rate.
Example  If repo rate is 7% , and bank takes loan of Rs 1000 from RBI , they will pay interest of Rs 70 to RBI.
RBI surprises, cuts repo rate by 50 bps; keeps CRR at 4%

The Reserve Bank of India (RBI) lowered the benchmark repo rate by 50 basis points to 6.75 percent, while keeping CRR and SLR unchanged at 4 percent and 21.5 percent, respectively. This marks the fourth repo rate cut by the RBI since January 2015. However, it has lowered its FY16 GDP growth target to 7.4 percent from 7.6 percent. It also said the focus should now shift to bringing inflation down to 5 percent by FY17-end.
Impact of RBI Rate cuts

Your EMIs to get lower as RBI cuts interest rates by 50 basis points

The below graphical illustration shows you about the impact of RBI’s rate cuts on Deposit Rates, Lending rates, Money supply in economy, economic growth and purchasing power of consumers.

  • The Reserve Bank of India surprised markets Tuesday by slashing its key interest rate by 0.50 percentage points to 6.75%, taking advantage of easing inflation to boost growth in an economy that hasn't been able to escape global headwinds.
  • A Reuters poll last week showed only one out of 51 economists had expected a 50 basis points cut in the repo rate, while 45 had expected a 25 bps cut.
  • The RBI had previously cut interest rates three times this year, lowering it by 25 basis points each time. 


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