Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds. It is used for controlling inflation of a country.
High Repo rate:
Taking loan from RBI will be costlier.
Effect of High rates will lead to decrease in money supply.
High rate of EMI’s and Loan for retail consumer.
High cost of loan for loanee.
Reduction in inflation rate.
Low repo rate:
More money supply in the market
Inflationary tendencies.
Low EMI’s and low cost of loan for retail consumer.
Also utilise as a tool to give a impetus to the economy in the short down when investment is at passive state.
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