Repo rate is maintained at 6.5% by the RBI

Mr.Shubham Singh Chandel

Assistant Professor, Faculty of Commerce and Management

Kalinga University, Naya Raipur (C.G.)

subham.chandel@kalingauniversity.ac.in

Given worries about inflation, the Monetary Policy Committee (MPC), chaired by the Reserve Bank of India (RBI), kept the repo rate at 6.5 percent on Friday, as was generally anticipated. The central bank committee has maintained the benchmark lending rate at this level for the last seven times in a row. One important factor in this situation is still the repo rate—the interest rate at which the RBI loans to banks.

How Do Repo Rates Operate?

Interest is charged on the principle amount of each loan you take out from a bank. The cost of credit is what we call this. In a same vein, banks must pay interest to the Central Bank on any money they borrow from the RBI during a liquidity constraint. We refer to this interest rate as the repo rate.

Repo is an acronym for “repurchasing option” or “repurchase agreement” in technical terms. Under this arrangement, banks give the RBI acceptable assets, such Treasury Bills, in exchange for overnight loans. There will also be a contract in place for their buyback at a certain price. The bank receives the money, and the central bank receives the security.

Dealing with Inflation:-

According to the governor of the Reserve Bank of India, retail inflation is expected to reach 4.5% this year, a move closer to objectives. The government has ordered the RBI to keep retail inflation at 4% with a 2% buffer on each side. According to Mr. Das, throughout the past nine months, core inflation has gradually decreased while the fuel component has been in deflation for six months running. Strong economic expectations allow the policy to stay focused on inflation, he continued.

He did, however, warn that there are still issues with food price uncertainty and that the MPC is still on the lookout for inflationary pressures that may scuttle the process of deflation. “Food inflation continues to exhibit considerable volatility which is impeding the ongoing disinflation process,” he stated.

Which Affects the Economy with the Repo Rate?

The Reserve Bank of India (RBI) works hard to restrict the amount of money flowing into the economy when inflation is high. Increasing the repo rate is one method to do this. Because of this, borrowing becomes expensive for companies and sectors of the economy, which in turn reduces investment and the amount of money available for purchase. Consequently, it has an adverse effect on economic growth, which aids in the management of inflation.

Conversely, the repo rate is lowered by the RBI when it has to inject money into the economy. As a result, industries and enterprises discover that borrowing money for various investment goals is less expensive. Additionally, it expands the economy’s total money supply. In the end, this accelerates the rate of economic growth.

Good News for Homebuyers:-

This is fantastic news for homebuyers since it guarantees that their equivalent monthly installments (EMIs) won’t fluctuate. This gives buyers of homes another chance to choose homes that will maximize their savings. Unchanged mortgage rates provide some respite to purchasers, despite the fact that housing costs have increased in all seven of the top cities during the last year. This is likely to result in lower interest rates for house loans, improving affordability and stimulating the market with predicted growth in sales.

Furthermore, based on prevailing patterns, the housing market is exhibiting a bullish trend, and it is anticipated that stable house loan rates would contribute to the general improvement in consumer confidence.

What Impacts Repo Rates Have on Home Loans?

There are specifics about these loans that buyers need to be aware of before taking out a home loan linked to repo rates or switching from their current home loans to one. There is a quicker transmission rate. Any changes to the repo rate will probably show up in your EMI payment much faster. This suggests that in the event that the banking authority changes its benchmark lending rate, your house loan EMI will increase.

Furthermore, banks will ultimately choose the additional interest rate they will apply to mortgage repo rates.

References:-

1. https://cleartax.in/s/repo-rate
2. https://www.ndtv.com/business-news/rbi-keeps-key-lending-rate-unchanged-at-6-5-5378399
3. https://www.financialexpress.com/money/rbi-keeps-repo-rate-unchanged-should-homebuyers-be-happy-or-sad-3446794/