RBI Repo Rate Hike: The Reserve Bank of India has once again changed the repo rate. Increasing the policy interest rate for the fifth consecutive time, this time it has been increased by 0.35 percent. But how is this going to affect your pocket? How does increasing loan EMIs bring down inflation? Understand the complete connection here…
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RBI MPC Meet: The inflation rate in the country still remains at a high level. Keeping this in mind, the Reserve Bank of India (RBI) Has increased the repo rate once again. The repo rate has been increased by 0.35 percent, after which it has become 6.25 percent. this makes your Home Loan, Personal Loan come on Car Loan Of EMI It is almost certain to increase, that is, another burden on the pocket which is suffering from inflation. But do you know how inflation is reduced by increasing the interest rate of RBI? How is it beneficial for the economy and how is it beneficial for everyone, what is its connection with inflation? Let us tell…
But first of all understand the repo rate (What is Repo Rate?). RBI is the apex body monitoring all the banks in the country. All banks borrow money from RBI only, so the rate at which the central bank lends money to other banks is called repo rate.
What does banks loan have to do with repo rate?
When the repo rate increases, the cost of capital of the banks (Capital Cost) Increases, that means it is expensive for them to give money on loan (Loan become costly) It happens. It is compensated by the interest charged on the bank loan. (Bank Loan Interest Rate) do from. That’s why they increase or decrease their interest rate according to the fluctuations in the repo rate.
According to the guidelines of RBI, banks have to keep their interest rates balanced according to some external standard. That’s why most bank loan interest rates are linked to the repo rate. (Repo Rate Linked Interest Rate) Let’s do it.
Inflation related to repo rate
Now understand the connection between repo rate and inflation (Connection between Repo Rate & Inflation). When loans are available from banks at low interest rates, then more money reaches the economy, that is, cash increases in the market. (Liquidity Increased in Market) Is. People’s ability to buy due to increase in cash in the market (Purchasing Power) Increases and demand is created in the market.
For example, at the time of Corona, the government took many measures to maintain the demand inside the market. EPFO easily to the people (EPFO) Facility to withdraw money, emergency credit line for small industries (Emergency Credit Line) Maintained the demand in the economy by providing
At the same time, RBI kept the repo rate at a low level, due to which artificial demand was created in the market. (Artificial Demand) Remained At that time it was necessary to maintain it for the economic growth of the country. More or less all the countries of the world adopted similar measures at that time.
In such a situation, when less cash will reach the market due to expensive loans, then it will affect the demand. This will affect overall inflation. To control inflation, central banks around the world have adopted the method of increasing interest rates.
Inflation will make you cry next year too!
Inflation in the country is still at a high level. In October 2022, it has been 6.77 percent. This was the 10th consecutive month when the inflation rate was more than 6 percent. RBI tries to keep the inflation rate in the range of 4 percent. While 6 percent is its maximum limit.
In the MPC meeting of RBI, it has been estimated that the inflation rate will be more than 4 percent in the next 12 months i.e. in 2023.
English Headline: What is the connection in between RBI repo rate and inflation, how costly loan EMI gives relief to your pocket?
Source: www.tv9hindi.com”