How does Repo Rate affect us?
Not too long back, you must have come across headlines saying “RBI cuts interest rates”, indicating that the Reserve Bank of India has cut down the repo rate by 25 basis points (bps), from 6.25% to 6%. But what exactly is repo rate and how does a rate cut affect you? Read on to learn more What do you mean by Repo Rate? When we are in need of money, we take loans from banks and for the loan, we need to pay a certain amount of money as interest. This is termed as the cost of credit. So what do banks do when they are in need of money? They borrow money from RBI. The rate at which banks borrow money from RBI by selling their government securities to the Central Bank (RBI) is known as the Repurchase Rate or better known as the 'Repo Rate'. Before borrowing money from RBI, banks enter into an agreement with RBI to repurchase the pledged Government securities in future at a predetermined rate which is managed by the RBI. Repo rate can also be called as the cost of cr