Consequences of a Repo Rate Cut

The rate at which financial institutions borrow funds from the RBI in exchange for RBI-recognised security deposits is known as the repo rate.


A repo rate cut enables financial lenders to lower their lending rates, thereby offering loans at much cheaper rates.
The aspect of the market most affected by the RBI repo rate cut is mortgage loans like home loans.
How repo rate revisions affect home loans?
As a drop in the repo rate reduces the cost of borrowing for financial institutions, they can cut down on home loan interests. With reduced repo rate, lenders can offer home loans at a lower rate of interest. It is an additional benefit financial lenders can pass onto their customers.
How repo rate affects economy?
The repo rate determines the interest rate at which financial organisations lend money to borrowers. It affects the economy in the following ways –
  • Inflation control- A high repo rate increases the borrowing cost for financial organisations. This makes it difficult for them to invest in the market
  • Maintain cash flow or liquidity- To ensure more cash flow, RBI lowers the repo rate encouraging financial institutions and organisations to invest in the market.
Steady economic growth is one of the outcomes to expect from repo rate cut announcement. It is advised that you keep an eye on the rate, especially if you intend to avail a home loan anytime soon.
Must Read:- What Is Repo Rate and How it Impacts Home Loans

Location: New Delhi, Delhi, India

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