If you keep a tab on financial affairs, then you may have an idea about the concept of the repo rate and the reverse rate. These two terms hold much significance in the world of finance and the economy in India. What is repo rate? The repo rate is the rate at which commercial financial institutions borrow money from the RBI. They do that by selling off their securities to maintain liquidity. If there is a shortage of funds in a bank, it borrows money from the RBI at a repo rate. You are now aware of the repo rate meaning. Repo rate impact on loan EMI is as per the modifications done from time to time. Repo rate impact personal loans could be seen with banks lowering their interest rate. It is because they have more funds to grant as loans. The repo rate has not been changed and stands at 4%. What is a reverse repo rate? The reverse repo rate is a system to absorb the market’s liquidity. In turn, it restricts investors’ borrowing power. Under the reverse repo rate, RBI borrows money from banks and other lenders. It is done in case there is excess liquidity in the market. Banks benefit from the reverse repo rate by enjoying interest gains for holding their funds with India’s Central Bank. Reverse repo rate affects your loan interest rates. It is because lenders have fewer funds with themselves to release as loans and more. Currently, the reverse repo rate stands at 3.5%. What will happen next? The rate of interest of loans may rise in the event of an unchanged repo rate. Customers with ongoing floating rate home loan, business loan and personal loans may see a spike in interest rate. With the reverse repo rate not being changed, banks may or may not be interested in parking more money to gain interest gains. It would depend from banks to banks. Must Read: Everything You Should Know About Repo & Reverse Repo Rate
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AuthorAman Khanna is an experienced financial advisor who is well known for his ability to foretell the market trends as well as for his financial astuteness. He has an MBA in finance from Toronto University as well as years of experience delivering seminars on sound financial practices and debt management. |