GS III: Economy
The Reserve Bank of India (RBI) has reduced the repo rate by 25 basis points to 6.25%, the first cut in nearly five years, to boost economic growth by making borrowing cheaper.
What is the Repo Rate?
The repo rate is the interest rate at which RBI lends short-term funds to banks, influencing:
- Inflation
- Liquidity
- Economic growth
How It Works
- Lower Repo Rate → Cheaper borrowing → More loans for businesses and consumers.
- Higher Repo Rate → Expensive borrowing → Reduced spending → Inflation control.
Impact of Repo Rate Cut
- Cheaper Loans – Lower home, vehicle, and personal loan rates.
- Higher Investment – Encourages businesses and individuals to spend more.
- More Jobs – Increased investment boosts employment.
- Inflation Risk – Excess demand may push prices up.
- Global Trends – Aligns with global monetary easing to support growth.
The rate cut aims to revive economic activity, but careful monitoring is needed to balance growth and inflation.