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What is RBI rate cut and how it influences your loan?
Posted on: 01/Aug/2017 3:35:36 PM
There have been continuous complaints about the monetary policy committee’s august meet from the economists, lenders and media reports.
In the policy rate in June, the MPC under the Reserve Bank governor Urjit Patel had disappointed a lot. As of now, the repo rate is 6.25 percent. So what is all about this rate cut?
Repo rate or lending rate is the rate cut reviewed by MPC in every 2 months. It is at this rate that the central bank lends money to commercial banks including State Bank of India, ICICI bank, Axis bank, etc for government securities.
So, on the whole, rate-cut made by the RBI indicates that the commercial banks will be borrowing at lesser rate from the central bank. With this, they will furthermore lessen interest rate for the money lend to customers.
This rate cut will also pave way for increased profit to the commercial banks as there will be a lot more people showing interest towards borrowing money. These banks will retain the lending rate higher as compared to the rate at which they borrow from the RBI.
Thus, everyone starting from banks and businesses until common man and the large industries will get hit due to this. When the benefits are passed on to the customers, as needed in practice, the loans will turn cheaper.
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