Major Difference - MCLR Vs Repo Rate


The RBI looks after the monetary policy in India. To do that, RBI uses several financial tools like repo rate, bank rate, etc. Both MCLR and repo rates play a vital role in maintaining a smooth flow of fiscal policies in India.

When the commercial banks borrow loans from the RBI, the interest rate that is imposed on the banks by RBI is called the repo rate. On the other hand, a bank can not lend money below the MCLR rate. Although, both MCLR and repo rate work with the same objective, still there are some major differences.

Generally, the repo rate is regulated by RBI to increase or decrease the cash flow in the monetary system. However, MCLR is increased by the bank if the repo rate is increased. Changes in repo rate affect the area of the economy, but a change in MCLR only affects the people who want to take a loan. An increase of the Repo rate depends on the cashflow of the whole system while MCLR is increased by the bank depending on factors like operation funds, repayment tenure, etc. Repo rate being an external factor, any change in repo rate affects the whole economy.

Also Read:- Difference between Repo Rate and MCLR

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