What is the repo rate? How does your EMI increase or decrease? Learn everything here.

News Topical, Digital Desk : Even before the RBI's decision, there had been much speculation that the repo rate would remain unchanged. Hearing this news, the public is now questioning: What exactly is the repo rate, and how will its changes or omissions affect us?

First of all, let us understand what is Repo Rate? 

What is Repo Rate?

The country's central bank holds a meeting of the Monetary Committee every two months. During this meeting, decisions regarding the repo rate and other financial matters are made. The repo rate is the rate at which commercial banks borrow money. However, banks also borrow short-term loans from the RBI based on the repo rate.

Now let us understand how this will affect you.

What effect will the Repo Rate Cut have?

If the repo rate is cut, banks will offer loans at lower interest rates. Consequently, you will also receive a loan at a lower interest rate.

Similarly, if the repo rate increases, borrowing money will become more expensive for banks. This will increase your loan interest rate, which will also increase your EMI.

However, it also depends on the banks whether they want to reduce the fixed interest rate after the repo rate cut or not.

Why does RBI change the repo rate?

The country's central bank, the RBI, attempts to control the money supply by changing the repo rate. By controlling the money supply, it works to increase or decrease inflation. Similarly, the government also controls inflation through its fiscal policy.

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