Understanding the Repo Rate: Its Impact on India's Economy

The repo rate, short for 'repurchase rate,' is the rate at which the Reserve Bank of India (RBI) lends money to commercial banks in the event of a shortfall. It is a crucial tool used by the RBI to control inflation and regulate the country's money supply. When the repo rate is increased, borrowing becomes more expensive for banks, leading them to hike interest rates for consumers. This, in turn, can reduce consumer spending and help control inflation. Conversely, a decrease in the repo rate makes borrowing cheaper, encouraging spending and investment, which can stimulate economic growth. Understanding the repo rate is essential for both consumers and businesses, as it directly influences loan interest rates, EMIs, and overall economic activity.