New Delhi: We often keep hearing and reading news about the repo rate. Then the question arises in our mind that after all what is this and what does the common man have to do with this rate. Can any change in this affect our personal finances as well?
Actually, the rate at which RBI gives loans to commercial banks and other banks is called the repo rate. Reduction in repo rate means that banks will get cheaper loans from RBI and loans from banks will also become cheaper. Home loans, vehicle loans, etc. become cheaper due to the lower repo rates. If the cost of credit remains low, then the demand for related products will also increase, due to which companies will expand and new employment opportunities will also be created.
How does your loan get cheaper?
Repo rate is also the external benchmark set by the Reserve Bank, on the basis of which all government and private banks fix their loan interest rates. The loan linked to this rate is called Repo Linked Lending Rate (RLLR), in which banks fix interest rates for retail loans by adding some of their internal expenses. Apart from this, banks also disburse loans on the basis of their internal benchmark Marginal Cost of Lending Rate (MCLR).
What is it to do with the stock market?
Any change in the repo rate directly affects the earnings of banks, their performance, deposits loans, and margins. It also affects the stock of banks trading on the exchange and shows a decline or increase in it. Apart from this, due to cheap or expensive loans, the interest rates of auto and home loans also change, which directly affects the stock of companies related to them.
How many companies are affected by the repo rate
The effect of any change in the repo rate is directly visible to the automobile companies, auto parts, or equipment manufacturers. Apart from this, the change in home loan EMI has some impact on almost all companies in the infra sector including real estate companies, NBFCs, cement, steel. About 200 sectors companies are associated with real estate.
And in the end…the whole economy kicks in
Now that it has become clear that the repo rate affects not only the loan disbursing banks and NBFCs but also thousands of companies associated with them, then it would not be wrong to say that the Reserve Bank has kept the economy down for the last almost two years. played a major role in its recovery. When these thousands of companies get a chance to grow and expand the business, it also creates new jobs and people get money to spend, due to which the whole economic cycle starts spinning.