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  • Category: Miscellaneous

    Why the Reserve Bank of India continuously reducing interest rates?

    The Reserve Bank has reduced the Repo rate of 0.40%. Is this proof that India's economic growth is slowing down? Is this beneficial to ordinary people? Does the reduction in the Repo rate hurt the regular investors in the bank? What are the benefits to the general public when the repo rates are lowered?
  • #697459
    Repo rate is the rate of interest charged by Reserve Bank of India when it gives loan other commercial banks. Then these commercial banks will pass on that benefits to the customers we take a loan from these banks. As the repo rate comes down, the rate of interest on various loans a common man takes like a vehicle loan, a house loan. a personal loan will come down. That way the person who had taken a loan will get benefitted. The industries who take a loan from a bank will also have to pay less amount as interest. This will reduce the cost of production and hence the customer may get the items for a less cost.
    Bank need not reduce the rate of interest on the deposits they took immediately after repo rate reduction as there is no impact of this rate on our deposit rates.

    always confident

  • #697474
    As the purchasing power of the people has gone down and to infuse the confidence and strength the RBI time and again as the tool use the repo rate to balance the economy and come back to vibrant mode. This would surely benefit those who want to go for housing loans, vehicle loans, personal loans and any other short terms loans to which the banks are ready to give the money without much documentation as the central government standing as the guarantor for six years from now. Surely the market would be vibrating with new customers and purchasing power of the people would increase.
    K Mohan @ Moga
    'Idhuvum Kadandhu Pogum "
    Even this challenging situation would ease

  • #697477
    Reserve bank views things at a Macro level. It is concerned about the money avaialbility in the country-with people and banks. It is a fact that availability of spendable money only can boost demand thereby increasing busines and economy.

    The lockdown has made the money availability less . So Reserve and government want people to have more money. So they encourage Banks to give loans at low interest which will attract people and business to take loan for their business workiing and expansion. Now because payments are not coming to banks, Banks need money to lend. By decreasing Repo rate they will be able to borrow money from RBI and lend to their customers loans at low interest. This will make more money in the market helping business and economy to grow.

  • #697480
    Repo rate has been slashed to make money available to the customers at some cheap rate so that the money could be utilised for the investment in the different set up. Such an investment of money could accelerate the economic activities in the market thus avoiding the slackness in its rational use. In one way, the Banks are interested to ease the money situation of the customers so that they can infuse money in the different segments according to their choice. In one way, it is the appropriate step at this time so that the customers can utilise the available money in setting up their own business of their likings. Interest rate for the bank deposit are not likely to be affected unless the same is indicated in such notifications.

  • #697481
    As mentioned by other members also now the bank can give loan on less interest rates to the borrowers and the borrowers would be happy in paying less interest and if more loans are distributed that will eventually help in the business activities. So, the RBI directive is basically to help the business and economy. So far so good but there is one more aspect to this exercise done by the RBI. The basic earnings of the banks come from loan interest and other fees charged on their services. If the loan interest is decreased then the earnings of the banks would reduce. To offset that, generally banks would either increase their service charges or reduce interest rated on fixed deposits. That is why in last 2-3 decades the bank interest rates have come down from a staggering 12-14% band to the present 5-7% band.
    Thoughts exchanged is knowledge gained.

  • #697524
    Extreme changes in financial markets is a major cause of worry for any Govt. In such times the apex financial body that is RBI has a responsible position to act and issue some directives or measures to ease up the situation in the market. RBI had time and again resorted to such measures which many times helped the ailing economy to come out of the crisis times. The present measure of reducing the repo rate is also a step in the same direction. Banks have to follow these directives and time being they cannot decrease the FD rates also as for a few months they have to wait for the off take of the proposed benefits of low interest loans and if RBI revokes it after a few months banks would be able to absorb the differential earnings in that small duration of a few months. Incidentally banks have already reduced their FD rates significantly in the past to take care of these trends or we can also say that they have preempted the RBI actions as regards to their earnings management.
    Knowledge is power.

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