RBI’S RATE CUT- IS IT GOOD NEWS OR A BAD?
RBI has recently reduced the repo rate to 5.15%. This reduction has shifted the RBI’s stance from calibrated tightening to neutral.
Determination of Repo Rate
RBI makes its monetary policies based on the Consumer Price Index and inflation. Repo rate is the rate at which banks borrow money from RBI against government securities. An increase in repo rate discourages banks from availing the loan, while decreases in repo rate encourage them to avail loan from RBI. Controlling inflation is the central aspect behind making any changes in the repo rate.
The effect of repo rate cut falls on all entities, be it companies, individuals, or firms.
Effect on Companies
Lower repo rate means lower borrowing rates. This makes it cheaper for companies to avail loan from banks and expand their business.
Effect on Individuals
Individuals usually celebrate the reduction of repo rate, as the general thought process is, lower the repo rate lower will be the interest rate on loan. However, it is not true. This is because, in the case of MCLR benchmarking, the change of rate is entirely in the hands of a particular bank.
Low Inflation
As per the new budget, the inflation rate is 4.6 percent. Such a low rate of inflation has enabled Indian products to compete in the international market.
Determination of Repo Rate
RBI makes its monetary policies based on the Consumer Price Index and inflation. Repo rate is the rate at which banks borrow money from RBI against government securities. An increase in repo rate discourages banks from availing the loan, while decreases in repo rate encourage them to avail loan from RBI. Controlling inflation is the central aspect behind making any changes in the repo rate.
The effect of repo rate cut falls on all entities, be it companies, individuals, or firms.
Effect on Companies
Lower repo rate means lower borrowing rates. This makes it cheaper for companies to avail loan from banks and expand their business.
Effect on Individuals
Individuals usually celebrate the reduction of repo rate, as the general thought process is, lower the repo rate lower will be the interest rate on loan. However, it is not true. This is because, in the case of MCLR benchmarking, the change of rate is entirely in the hands of a particular bank.
Low Inflation
As per the new budget, the inflation rate is 4.6 percent. Such a low rate of inflation has enabled Indian products to compete in the international market.
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