How does repo rate increase affect you?

Repo rate is the rate at which the central bank (Reserve Bank of India, in the case of India) lends money to commercial banks. A hike in the repo rate means that it becomes more expensive for banks to borrow money from the central bank, which in turn makes it more expensive for customers to borrow money from commercial banks. 

 When borrowing becomes more expensive, consumers may cut back on their spending, which can lead to slower economic growth.By making it more expensive to borrow, the central bank can help to reduce inflation. This is because people will be less likely to spend money, which can help to keep prices from rising too quickly.When borrowing becomes more expensive, people may be more likely to save money rather than spend it. This can lead to higher levels of savings, which can be used to invest in the economy and spur economic growth in the long term.

Higher borrowing rates can lead to lesser home ownership,as the cost of a homeloan interest increases,then real estate demand totally drives low,as people resort to lesser buying and saving money.The interest rate on a 50 lakh loan increased by Rs 7000 in the last two years.

This could effect the low and mid range properties,overall affodability of the property decreases,Real estate developers change plans due to higher borrowing rates and can stop new investments for a while till demand again gets back.

Banks usually increase their interest rates on FD’s to make people invest more,and also stay profitable.The average consumer spends less and saves more,this can lead to lower inflation.

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