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Mid Quarter Policy Review by RBI

The Reserve Bank of India increased both the repo rate and reverse repo rate in a mid-quarter policy review to control money supply, with the repo rate rising to 6% from 5.75% and the reverse repo rate rising to 5% from 4.5%. This makes borrowing from the RBI more expensive for banks and means interest rates on loans, deposits, and bonds are likely to increase as well.

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87 views1 page

Mid Quarter Policy Review by RBI

The Reserve Bank of India increased both the repo rate and reverse repo rate in a mid-quarter policy review to control money supply, with the repo rate rising to 6% from 5.75% and the reverse repo rate rising to 5% from 4.5%. This makes borrowing from the RBI more expensive for banks and means interest rates on loans, deposits, and bonds are likely to increase as well.

Uploaded by

savitashrivastava123
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© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Mid Quarter Monetary Policy Review

Reserve Bank of India has decided to increase the repo rate and reserve repo rate in Mid-Quarter
Policy Rates Review. Repo rate and reverse repo rate are the tools of monetary policy used by
RBI to control the money supply in the economy.

Repo rate is the rate at which the RBI lends money to the commercial banks. When the repo rate
increases borrowing from RBI becomes more expensive for the banks.

Whereas, Reverse Repo rate is the rate at which RBI borrows money from the banks. RBI uses
this tool when it feels that there is excess money floating into the banking system.

Current repo rate is 5.75% and RBI has decided to increase it to 6%.

Current reverse repo rate is 4.5% and it has decided to increase it to 5%.

As I mentioned earlier, a hike in the repo rate means, an increased cost of borrowings for
commercial banks. Hence as a reaction to such a move, cost of borrowing for individuals and
corporate may become expensive, as the lending rates might increase. Similarly, the interest rates
on fixed deposits also expected to increase.

Investment in Bonds is not ideal investment in a rising interest rate scenario. This is because
bond price and interest rates are inversely relate to each other.

Submitted By:

Savita

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