What is the Repo Rate? What is the Current Repo Rate 2022?

The repo rate is the rate at which the Reserve Bank of India lends money to commercial or financial institutions. As per the RBI Monetary Policy Meeting 2021 announcements, the repo rate has been kept unchanged at 4% for the ninth time. 

Repo rate also known as Repurchasing Option Rate, is a powerful tool of the RBI to keep a check on economic activities of the country; it also regulates the money flow in the market. 

What is the current repo rate 2021?

To mitigate the impact of COVID-19 on the Indian economy, the RBI has kept the repo rate unchanged “to revive and sustain growth on a durable basis”. The current repo rate is 4.25%, and the reverse repo rate is 3.35%.

When individuals borrow money from a financial institution, they are required to pay interest on principal amount. Similarly, when financial institutions borrow money from RBI, they are supposed to pay interest on borrowed amounts. This interest rate that commercial or financial institutions pay to RBI is the repo rate. The Reserve Bank of India monitors the cash flow focusing on certain parameters.

How does repo rate affect the Indian economy?

Repo rate is the rate at which the RBI lends finances to commercial institutions. It has a prevalent impact on boosting country’s economy and also affects the loan rates. Individuals must know what is repo rate and its influence on the Indian economy. The major impacts of Repo rate are as follows:

  1. Combat inflation: Repo rate is an important monetary tool to control the targeted inflation and help achieve price stability. During inflationary periods, the RBI increases repo rate to reduce cash flow. An increased rate discourages financial institutions from borrowing money.

On the other hand, when the RBI announces a cut in repo rate it encourages commercial institutions to borrow money from the RBI. As a result, there is an increased cash flow in the market, uplifting business cycles and enhances the country’s economy. 

2. Boost liquidity in the market: The RBI lowers the repo rate when there is a need to pump funds into the economy. It manages liquidity to result in macroeconomic growth and enhances financial stability. The RBI has adopted a proactive stance to ensure liquidity in the economy.     

3. Effect on interest rate: When the repo rate is higher, financial institutions will have to pay a higher interest rate to the RBI. In such cases, financers charge higher interest rates on the loan amount from their customers. 

Subsequently, when the RBI slashes the repo rate, lenders lower interest rate on the loan amount, therefore, attracting more customers. Reduced repo rate expedites the demand for loans like home loan. Borrowers get monetary aid by availing home loans at an affordable interest rate. 

The repo rate and reverse repo rate are crucial parameters based on which financial institutions offer interest rates to their customers.

If the rate at which financial institutions borrow from RBI is high, then commercial institutions will charge a higher interest rate for a loan. A lower interest rate suggests more people are willing to avail of loans. The low-interest rate has been effective in reviving the real estate sector.

As the RBI decides to retain accommodative policy stance by keeping the repo rate unchanged, it makes this time ideal for property buyers to opt for a home loan at a competitive interest rate. Home loan interest changes depending on the change in repo rate. Availing home loan will help borrowers dodge the monetary burden while buying a property.

Furthermore, potential borrowers can check their pre-approved offers extended by leading financers on products, such as home loans, loans against property etc. These offers make the lending process simple. Individuals can enter their names and contact details to check their pre-approved offers online.

To recapitulate, the repo rate is a powerful tool of the Indian monetary policy that regulates the country’s inflation level, liquidity and money supply. It affects our economy largely. By keeping low mortgage rates, the RBI has continued its accommodative stance which is required to fuel the economy of the country.