Repo rate is the rate at which the RBI or Reserve Bank of India lends money to commercial banks or other financial institutions. Currently, the Repo Rate stands at 6.50%. Any change in this rate affects the flow of money in the market. If you are interested in knowing what if Repo rate increases, read this answer and learn about its effects in detail. You can then easily figure out what the Reverse repo rate is as well.
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Is increase in repo rate good for market?An increase in Repo rate is not at all good for the market. In case of any inflation, the central banks increase this rate to reduce the money supply in the economy. It, therefore, helps in arresting inflation.
Now let me share how it affects the real estate market- if the Repo rate increases, the banks will have to pay a high amount of interest to the RBI. This will be acquired from the retail/corporate borrowers of the banks. As a result of this, there will be a higher interest outflow on loans taken from the banks. The loans will also get costlier by about 1-2%. Now, if the loans increase, people who were planning to take a loan and buy property will fall back, affecting the real estate market as well. Everything is directly or indirectly related to this Repo rate.
What is the Reverse repo rate and how is it different from Repo rate?The reverse Repo rate refers to the interest rate offered by the RBI to the banks that deposit money into their treasury.
A reverse repo rate injects liquidity into the market’s economy whereas a high repo rate drains the extra liquidity from the market
Repo rate is higher than the Reverse repo rate
Repo rate is used to curb inflation, whereas reverse repo rate is used to control the money flow.
These details should be enough to help you understand what if Repo rate increases.
Read More:How repo rate controls inflation?
What is the difference between repo rate and reverse repo rate?
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Authors Of The Question
What if Repo Rate Increases?
Tania
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1 Year
2023-04-09T22:13:51+00:00 2023-04-10T11:39:28+00:00Comment
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