You must be familiar with the term repo rate. But it’s necessary to know this in brief. So what is the repo rate? And how can you overcome when it affects you? Here are the points to be remembered so that it doesn’t affect anyone.
Repo rate can be defined as the lending of money to commercial banks from RBI. RBI provides the funds to the banks which have shortages of money. If there is a decrease in Repo Rate, then it helps the banks to get the money at a lower rate.
Increase in Repo Rate:
- RBI provides the money to banks at higher interest.
- Then the banks itself lend the money to the borrowers at high interest.
- There is a growth in lending and the interest rate increases which leads to the decrease in the borrowing money.
- The depositors are attracted by increasing the rate in the deposit interest.
The decrease in Repo Rate:
- There is an increase in money as well as an increase in supply.
- The demand is increased with an increase in goods.
- The GDP (Gross Domestic Product) growth also increases.
How Repo Rates Affects?
When there is higher growth in the Repo Rate, the banks tend to pay a larger amount of interest to the RBI which results to raise the higher interest rates that they provide to the customers. The customers left with no options, but they opt for a credit option from the bank which leads them to a shortage of money.
- So talking about the high rise in the growth of the economy, the rise of the amount can be controlled by spending the money in a limited way. High economy rates of the companies are affected as they refuse to take loans at higher interest thus it leads to the growth of the production.
- Taking an example, it can be illustrated; if the funds are limited and one cannot get the availability of funds then the Repo Rate cannot be borrowed by the banks which leads to the increase in the rates of the deposits, only to please the available depositors.
- At last, if the Repo Rates are deduced it simply increases the deposit rates of the probability which in return tends to be great news for the customers or depositors.
How it affects the sectors?
The sectors which mainly includes the automobiles, in which there is a growth in policy rates which increases the rate of interest. The increase in rates will not only affect the companies demand but will also make the least earnings concerning the growth of cost in interest.
The increase in higher rates will also slash companies whose value of the shares is increasing. There is a probability of more money to be initiated for the debt than the ordinary equities which lead to the higher risk in return.
If one has to be more concerned about the Repo Rate which includes in affecting one’s ability for the repayment of the debts and the equity, then National Dept Advisors plays a vital role which provides the necessary information as well as help in managing the best option to go for.