August 7, 2022
RBI Monetary Policy: What happens to the repo rate, how does it determine the incidence and increase of the loan?  learn everything

Repo Rate: Monetary policy is a policy through which the monetary authority of a country, especially the central bank of that country, regulates and controls the supply of money through the control of interest rates within that country’s economy so that the prices of goods increase. This can be avoided so that the economy can be taken in the direction of development. In common parlance, problem policies related to money are called monetary policy. The monetary policy of India is implemented by the Reserve Bank of India (RBI).

RBI’s Monetary Policy Objectives

The objective of the Reserve Bank of India’s monetary policy in the country is to manage the amount of money to meet the needs of different sectors of the economy and to increase the pace of economic growth. RBI implements monetary policy through open market operations, bank rate policy, reserve system, credit control policy, ethical persuasion and many other tools. Using any of these tools will result in a change in the interest rate, or a change in the money supply in the economy.

What would be the repo rate and how would it be determined?

Repo rate is the rate at which banks get loans from the Reserve Bank. In this way, banks get costly loans from RBI when the repo rate increases. Due to which the bank also gives loans to the common people at an expensive rate. When inflation is very high, the Reserve Bank tries to reduce the cash flow in the economy by raising the repo rate. If money flow is less, then demand will decrease and inflation will decrease.

Repo rate hiked for this

Similarly, when the economy goes through a bad phase, there is a need to increase the money flow for recovery. In such a situation, RBI reduces the repo rate. Due to this, the loan from RBI becomes cheaper to the banks and the customers also get the loan at a cheaper rate. For example, the economy was badly affected during the Corona period, economic activity came to a standstill due to low demand. Then the Reserve Bank increased the cash flow in the economy by reducing the repo rate.

Decisions of the Monetary Policy Committee meeting

Let us tell you that after the meeting of the Monetary Policy Committee on Friday, the RBI announced an increase in the repo rate. RBI Governor Shaktikanta Das informed about increasing the repo rate by 0.50%. After this hike, the repo rate has increased from 4.90 percent to 5.40 percent. Now its effect is going to be visible on the EMI of home loan, personal loan and auto loan. Now you have to pay more EMI.

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