01 November 2008
Banks take short term loans from RBI , and the interest RBI charges from them is called Repo rate . How is Repo Rate linked to the interest we pay for loans from Bank ?
Simple , Banks need to charge more interest than they are paying. Banks will charge more than the REPO Rate for loans which they give. If Repo rate comes down , banks may also consider the interest rate they charge us .
Thats the reason that the cut in Reporate creates liquidity of funds and thereby inducing people to invest wherever they think fit and thereby improves the overall economy.
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