RBI is one of the premier banking institutions in the country which regulates all the government-run financial organizations and controls money and inflation to provide stability to the economic growth of the country. One of the most important roles of RBI is the disposal of controlling economic parameters and monetary policy as it affects the interest rates on home loans, personal loans and other types of loans in the country. The effect of monetary policy also significantly impacts the health of various types of investment and individual borrowing power.
Knowing the Rate of Interest of RBI Policy With Their Impacts on Loan
Two types of RBI influential policies affect the economy of the financial aspect of India: the Repo Rate and the Reverse Repo Rate. The Repo rate is the rate at which commercial banks borrow money from the Reserve Bank of India and the Reverse Repo rate is the rate at which RBI borrows money from respective commercial organizations. A minute change in these rates will affect the purchasing power of the individual and their participation in various types of financial activities. It affects the rate of interest related to several types of rates provided by the banking organizations.
The Affect of Repo Rate
Once the Reserve Bank of India increases the Repo rate, the cost of borrowing from various financial banks and other organizations from the RBI constantly rises. Afterwards, these financial institutions pass this hike to the general customers, which leads to an increase in several types of interest rates on secured and unsecured loans. In this case, if you want to get a new loan from a lender or banking institution, you will face a huge rise in interest rates. Similarly, a decrease in the Repo rate will lead to a reduction in the interest rates on the loan you are providing, which makes it very easy for the borrower to get a new loan.
The Affect of Reverse Repo Rate
To gather more funds with the Reserve Bank of India, the Reverse Repo Rate becomes a game-changer for customers and financial institutions. It effectively reduces the entire supply of money in the economy. These things include several types of increases in lending rates including home loans. A reduction in the rate can have the opposite effect on loan borrowing.
Several Other Policies of RBI Which Affects Home Loan Rate of Interest
CRR or Cash Reserve ratio: An increase in the Cash Reserve Ratio or CRR means banks and financial institutions have very little amount/money which leads to an increase in the home loan rates.
Statutory Liquidity Ratio (SLR): The additional charges or penalties in the SLR increase and affect the liquidity of money in several types of banking systems which directly affects the loan borrowing power. It subsequently increases the home loan or other secured loan interest rates.
Liquidity Adjustment Facility or LAF: It helps the Reserve Bank of India to manage and organize its liquidity ratio and its effectiveness impacts the entire processing of lending loans from lenders. A borrower can pay a variable rate of interest when he wants to get a new loan from a bank or financial organization. The LAF helps people to track or lender various types of home loans and their lending power.
External Factors and the Decisions of the Reserve Bank of India
Several other factors affect the decision of RBI like Global economic events, fluctuation in the currency value on global platforms and financial market trends. RBI analyses these changes and provides its decision to banks and financial organizations to control inflation to promote the economic health of the country.
The Policies of RBI plays a very crucial role in determining various types of interest rates in the country. With the effect of these economic trends, inflation and the value of the cost and production directly affect and steer the purchasing power of the common man in dealing with day-to-day activities and also affect them whole in getting new loans from their respective bank and lender. If you are a prospective home or personal loan borrower or just a homemaker, you should be aware of several types of changes to RBI monetary policy.
Conclusion
Several things in the economics sector affect the lending and borrowing activities of a particular lender or bank. All these things are regulated by the central bank which is the Reserve Bank of India. The affecting factors to the interest rates of loans and the purchasing power are repo rates and reserve repo rates. Some other factors are also included in this segment like global market trends and the economic factor of RBI decisions.
