RBI Interest Rate Increase – The Impact on the Economy & Personal Finance
One of RBI’s key functions is to control the money supply in the economy as well as ‘credit costs’. That is, how much money is available for the industry or economy and what price it should have the paying economy to borrow the money. ‘Availability of money’ is nothing but liquidity and ‘borrowing costs’ is the interest rate.
Both of these (offering money and credit costs) are closely monitored and controlled by the RBI. Inflation and economic growth are strongly influenced by these two factors.
To control inflation and growth, the RBI uses certain tools, such as
- CASH RAINABLES RATIO
- LIQUIDITY RELATION UP TO, REPO LEVEL, AVERAGE LEVEL, etc.
A rate of RBI Increase – Impact on the Economy
The major national and international economic factors that could lead to the possibility of an increase in bank interest rates are:
- Crude Oil Prices
- Inflation Rate: In addition to higher oil prices, the Govt Push device for minimum cost price, revisions to the governing body, a good Monson, etc.,
- Current Account Deficit
- Value of Rupee: Because of the above factors, the value of the Rupee against international currencies such as the US Dollar has weakened.
So, to withstand the inflation rate, the RBI may raise interest rates. But, this could lead to lower economic growth.
When we need money, we take a loan from the bank, the bank imposes a certain interest rate on this loan. The rate at which banks borrow money from RBI by selling their government securities surplus to the central bank (RBI) is known as the “Repo Rate.” Repo rate is a short form of Buyback Rate.
If you plan to buy the property through a short-term loan, you can decide on a “fixed rate loan”. E homeowners could make a partial advance payment of the loan (if you have a separate fund) to reduce the EMI exposure after the interest rate is set.