As you might have observed, prices in general — from vegetables to petrol — have been on the rise in the recent months. So, in order to control inflation the RBI announced an increase in the repo and the reverse repo rates. This will help in reining in inflation by curbing demand.
What is Repo rate?As explained earlier Repo rate is basically the rate of interest at which RBI Lends money to Banks (Commercial Banks)
Why is it important?: When the repo rate increases, it becomes costlier for the banks to get loans from RBI, which thus leads to banks having lesser liquidity(money in the bank) to lend, which further leads to a general shortage in the liquidity (money in circulation) in the market. Repo rate generally is an instrument of choice for RBI to control the liquidity in the market.
Will my borrowing cost rise due to the rate hike? : In the medium term, for instance 3 to 6 months, your borrowing costs are likely to go up for all kinds of loans such as home, auto and personal loans. This is because the rise in the repo rate will be passed on to the end customer over a period of time.
However, some banks or lenders were running special schemes on teaser home rates whereby the rate of interest was fixed for the first two years and changes for the third year. If you have already availed of these schemes, then your rate will not change.
If you are applying for a fresh loan, you will have to apply for the loan before these teaser loan deals expire if you want these low rates. In any case, after these deals expire, banks are free to revise their rates.
How will the rate hike affect the base rate? : The base rate regime for interest rates came into affect on July 1. These (base rates) are internal benchmark rates that each bank must use to price its loan rates for loans offered to all clients.
Source: ET
No comments:
Post a Comment