The Repo Rate Explained: How It Affects Loan Affordability and Economic Health

Description

The repo rate is the interest rate at which a country’s central bank lends money to commercial banks when there is a shortfall in liquidity. It is a vital monetary policy tool used by the Reserve Bank of India (RBI) to control inflation, regulate the supply of money, and stabilize the economy. A higher repo rate makes borrowing more expensive for banks, which in turn increases interest rates for consumers, curbing excessive spending and controlling inflation. Conversely, lowering the repo rate stimulates economic growth by making borrowing cheaper and encouraging investments.