Sunday, October 12, 2008

Repo Rate

When we are short of cash, we go to a bank to take a loan. Ever wondered where a bank in India would go for cash?

When a bank in India needs cash when it is short of funds, they would go to the Reserve Bank of India. As you know the RBI is the central bank in india that governs the banking operations in our country.

When you take a loan from a bank, it charges you an interest. Does the RBI charge any interest on the amount it lends to our banks?

Yes of course it does. The rate of interest at which the RBI gives loans to other banks is called the REPO Rate. When RBI reduces the Repo rate, the banks in India can get money at a cheap rate, similarly if the RBI increases its Repo rate, then getting cash from RBI becomes costlier.

The Repo rate, the Cash Reserve Ratio and some other factors influence the rate at which banks lend loans to customers like us...

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