Current Repo Rate

Last Updated 16th Oct 2019

RBI Repo Rate

4th October 2019 – RBI cuts repo rate by 25 bps to 5.15%

  • Current Repo rate is priced at 5.15%
  • Change in RBI Repo Rate leads to change in MCLR rate
  • RBI Monetary policy keeps inflation under control and accelerates the economic growth
  • RBI rate cut increases the demand for loans due to lower interest rates
  • Banks use repo rate to determine deposit rate, lending rates or base rates
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Current Repo Rate and History

Last Update Rate
04th Oct 19 5.15%
07th Aug 19 5.40%
06th Jun 19 5.75%
04th Apr 19 6.00%
07th Feb 19 6.25%
05th Dec 18 6.50%
05th Oct 18 6.50%
01st Aug 18 6.50%
06th Jun 18 6.25%
05th Apr 18 6.00%
07th Feb 18 6.00%
06th Dec 17 6.00%

Repo Rate Meaning

RBI repo rate is the most important policy interest rate in India. The repo rate is decided by the RBI Monetary Policy Committee headed by the RBI Governor.

What is Repo Rate - This is the interest rate at which the RBI lends money to licensed commercial banks in case they need short term funds to meet regulatory or business requirements.

Repo Rate as monetary policy signaling tool - More than anything else, the repo rate is used by the central bank to signal its monetary policy stance to the banks, businesses, government and people at large. RBI reviews the repo rate from time to time as part of the monetary policy review. Generally monetary policy fulfills two objectives – Keeping inflation under control and accelerating the economic growth.

4th October 2019 – RBI cuts repo rate by 25 bps to 5.15%

Repo Rate has been cut by 25 bps by RBI from 5.40% to 5.15% in its 4th bi-monthly monetary policy on 4th October 2019. Repo Rate has been cut 5th time in a row and is at the lowest in the last 9 years. This rate cut should bring in good news for home loan and mortgage loan borrowers, as the banks are expected to reduce their MCLRs, which should result in lower interest rates both for new and existing borrowers.

RBI Repo Rate Cut

The likely scenarios when repo rate is reduced:

  • When the central bank wants to signal lower interest rates in the market
  • When RBI is reasonably confident that inflation and fiscal deficit are in control and a demand led price surge is unlikely
  • When the economy is slowing down and the RBI wants to accelerate growth by signaling an accommodative monetary policy
  • When the external balance of payments situation of the country is seen to be stable by the bank

Impact of Repo Rate Hike

  • As the new MCLR is linked to Repo Rate, any increase in repo rate will lead to increase in MCLR. This will lead to increase in interest rate for borrowers who have taken floating rate home loan, personal loan and business loan
  • As the Repo Rate is increased, the demand for credit facilities (loan) will decrease, due to higher interest rate. This will help RBI and government to control inflation
  • Corporate will be able to get cheaper funds for business expansion. This will help in achieving the growth target

RBI Repo Rate increase

The likely scenarios when the RBI is likely to raise repo rate are:

  • When the central bank wants to signal higher interest rates in the market
  • When RBI sees over heating in the economy and perceives a risk that inflation may surge
  • When there may be a risk of asset bubbles being created due to excessive capital formation
  • When the RBI wants to reduce speculation in foreign exchange or sees a risk of disorderly depreciation of Indian currency

How does repo rate cut translate into lower interest rates?

When the RBI cuts repo rate, cost of funds of banks reduces. As a result, the banks are able to advance loans to their customers at a lower cost. Banks typically use the repo rate as a signal to determine their deposit rates, lending rates and base rates.

Reverse Repo Rate

Just as customers deposit their surplus funds with banks and earn extra income on the deposits made; similarly, Banks deposit their excess funds with the RBI. The rate at which RBI provides interest to Banks for depositing funds is called the reverse repo rate. The reverse repo rate is thus the rate at which the RBI borrows money from the banks, instead of lending money to them.
A reverse repo rate is, however, lower than a repo rate and is often used to control cash flow. An increase in reverse repo rate might reduce the cash flow in the financial market, and a decrease rate could do otherwise. A high reverse repo rate could help banks earn more interest, and thus will prompt them to keep as much money with the RBI as possible. Also, when RBI reduces reverse repo rate, banks tend to invest their money in other sources like lending loans in the market. This way, the cash flow increases. Therefore, a reverse repo rate affects the liquidity of funds in the financial market.

Home Loan News - Oct 2019
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