RBI MPC Meeting: Today is the last day of the three-day RBI monetary policy meeting, that is, the results of the meeting will be revealed today. In this meeting, RBI also takes decisions to increase or decrease the repo rate. Let us tell you what is repo rate, reserve repo rate and CRR.
RBI Monetary Policy: Today is the last day of the three-day meeting of the first Monetary Policy Committee of the year 2024. Through this meeting, the six-member team of RBI discusses the change in the policy repo rate to achieve the inflation target. RBI Governor Shaktikanta Das announces the results on the third day of the meeting. Meanwhile, changes are also made in the repo rate. RBI increases and decreases the repo rate from time to time as per the need. However, RBI has kept the repo rate stable for a long time.
The last time the repo rate was increased by 25 basis points to 6.5 percent was on February 8, 2023, since then no change has been made in it. It is expected that this time also RBI will not make any change in the repo rate. Let us tell you that whenever the Reserve Bank of India (RBI) increases the repo rate, it directly impacts the common man. Let us tell you what is Repo Rate, CRR and Reserve Repo Rate and how it affects the common man.
What is Repo Rate?
Just as you take a loan from a bank to meet your needs and repay it with a fixed interest, similarly public, private and commercial sector banks also need to take loans to meet their needs. . In such a situation, the interest rate at which loans are given to banks by the Reserve Bank of India is called repo rate. When the repo rate decreases, the common man gets relief and when the repo rate increases, difficulties also increase for the common man.
Loans become expensive due to increase in repo rate
Repo rate is a kind of benchmark, on the basis of which other banks determine the interest rate of loans given to the common people. When the repo rate increases, banks get loans at higher interest rates. In such a situation, banks increase the interest rates on home loans, car loans and personal loans for the common man and this impacts the EMI. That means, with increase in repo rate, EMI also increases.
What is Reverse Repo Rate?
Reverse Repo Rate is the rate at which the Reserve Bank of India deposits the surplus money of commercial banks with itself. In return RBI gives interest to these banks. This is called reverse repo rate. When the availability of cash in the market increases, the risk of inflation increases. In such a situation, RBI increases the reverse repo rate, so that the bank can deposit the amount with RBI to earn more interest.
How does reverse repo affect you?
To control cash liquidity in the market, RBI increases the reverse repo rate. When the availability of cash in the market increases, the possibility of inflation also increases. In such a situation, IBI increases the reverse repo rate so that banks deposit their money with RBI in order to earn interest. In this way banks are left with less money to distribute in the market.
What is CRR?
CRR means Cash Reserve Ratio (CRR). All banks have to deposit a certain portion of their total deposits with the Reserve Bank. It is called CRR. It is a tool to control the flow of cash in the market and is necessary for the stability and meeting the needs of the bank. The cash reserves maintained with the RBI ensure that banks do not face shortage of cash to meet the demands of their customers.
How does CRR affect you?
If CRR increases then banks have to keep a large part of their capital with the Reserve Bank of India. When banks keep a large part of their capital with ABI, banks will be left with less money to give loans to customers. This means banks will have less money to give loans to the common man. If the Reserve Bank reduces CRR then the flow of cash in the market increases. However, changes in repo rate and reverse repo rate have an immediate impact on the liquidity of cash in the market, whereas changes in CRR have an impact on the availability of cash much later. Therefore, RBI makes changes in CRR only when it does not have to have an immediate impact on the liquidity of cash.
