December4 , 2022

What is Repo Rate & Reverse Repo Rate?

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Both repo and reverse repo rate has a direct impact on home loans. Here in this article, discussed are definitions of repo and reverse repo rates and a brief tabular representation of the current repo rate. Have you ever given thought to how a bank determines the best home loan interest rate or rate of other loan instruments or savings bank accounts? The central bank of India – the RBI (Reserve Bank of India), lends funds to commercial banks at a particular interest rate based on the rate of interest decided for the consumers. Post-few months, the MPC (monetary policy committee) announced the monetary policy. For the past 2 years, the RBI has kept the repo rate unchanged owing to the COVID-19 pandemic. However, around June 2022, the repo rate was enhanced by 50 bps (basis points) to 4.90 per cent from 4.40 per cent. Next, in August 2022, the RBI increased the repo rate again by 50 bps to 5.40 per cent. At present, the reverse repo rate is 3.35 per cent.

A slight slump during the present quarter is owing to the macroeconomic parameters that have a bearing as we reside in a highly interconnected globe. The United States Federal Reserve’s interest rate benchmark increment of 0.75 per cent is one of the biggest increments since 1994, with a profound impact on the global markets. Owing to this, the RBI hiked the repo rate enormously, which propelled most of the banks in India to hike their rates, making the loan costlier. This parameter, combined with the off-and-on slump in Sensex, impacted the mutual fund investments, which made the real estate buyers hold on to their funds.

Present best home loan interest rates for all banks in 2022

Lender name Over Rs 75 lakh Over Rs 30 lakh and up to Rs 75 lakh Up to Rs 30 lakh
Indian Overseas Bank 8.45 per cent – 8.80 per cent 8.45 per cent – 8.80 per cent 8.45 per cent – 8.80 per cent
Canara Bank 8.05 per cent – 12.85 per cent 8.05 per cent – 12.85 per cent 8.05 per cent – 12.85 per cent
Bank of Maharashtra 7.80 per cent – 9.95 per cent 7.80 per cent – 9.85 per cent 7.80 per cent – 9.70 per cent
UCO Bank 7.90 per cent – 8.10 per cent 7.90 per cent – 8.10 per cent 7.90 per cent – 8.10 per cent
Bank of India 7.80 per cent – 9.65 per cent 7.80 per cent – 9.65 per cent 7.80 per cent – 9.65 per cent
Indian Bank 7.90 per cent – 8.95 per cent 7.90 per cent – 8.95 per cent 7.90 per cent – 8.95 per cent
Union Bank of India 7.90 per cent – 9.85 per cent 7.90 per cent – 9.85 per cent 7.90 per cent – 9.65 per cent
State Bank of India 8.05 per cent – 8.95 per cent 8.05 per cent – 8.95 per cent 8.05 per cent – 9.05 per cent
Punjab & Sind Bank 7.90 per cent – 9.00 per cent 7.90 per cent – 9.00 per cent 7.90 per cent – 9.00 per cent
Punjab National Bank 7.90 per cent – 9.00 per cent 7.95 per cent – 9.05 per cent 7.95 per cent – 9.35 per cent
Bank of Baroda 7.95 per cent – 9.70 per cent 7.95 per cent – 9.45 per cent 7.95 per cent – 9.45 per cent
RBL Bank 9.20 per cent – 9.50 per cent 9.20 per cent – 9.60 per cent 10.80 per cent – 12.50 per cent
Bandhan Bank 7.80 per cent – 13.15 per cent 7.80 per cent – 13.15 per cent 7.80 per cent – 14.00 per cent
Tamilnad Mercantile Bank 8.30 per cent 8.30 per cent 8.30 per cent
Dhanlaxmi Bank 8.60 per cent – 9.75 per cent 8.60 per cent – 9.75 per cent 8.60 per cent – 9.75 per cent
Federal Bank 7.77 per cent – 9.20 per cent 7.77 per cent – 9.15 per cent 9.05 per cent – 9.10 per cent
Karnataka Bank 8.16 per cent – 9.51 per cent 8.16 per cent – 9.41 per cent 8.16 per cent – 9.41 per cent
South Indian Bank 8.75 per cent – 11.50 per cent 8.75 per cent – 11.50 per cent 8.75 per cent – 11.50 per cent
Karur Vysya Bank 8.05 per cent – 10.25 per cent 8.05 per cent – 10.25 per cent 8.05 per cent – 10.25 per cent
Axis Bank 8.10 per cent – 8.55 per cent 8.10 per cent – 13.00 per cent 8.10 per cent – 13.00 per cent
ICICI Bank 8.10 per cent – 9.10 per cent 8.10 per cent – 9.00 per cent 8.10 per cent – 9.00 per cent
Kotak Mahindra Bank 7.99 per cent onwards 7.99 per cent onwards 7.99 per cent onwards

What does reverse repo rate and repo rate mean?

The reverse repo rate and repo rate are determined by the MPC (Monetary Policy Committee) in bimonthly meetings. MPC is headed by the RBI Governor, Shaktikanta Das. Let’s understand what’s reverse repo rate and repo rate –

Reverse repo rate – 

The reverse repo rate refers to the rate at which the Indian commercial bank lend fund to the Reserve Bank of India (RBI). It is an interest rate determined by the MPC (monetary policy committee) in bimonthly meetings. The motive behind providing money to commercial banks is, in return, the Reserve Bank of India offers a good, attractive rate of interest to them upon their surplus fund. There’s an indirect relation between money supply and reverse repo rate; if the reverse repo rate falls, money supply enhances and vice versa.

Repo rate – 

The Repo rate comes from the repurchasing agreement or option, which is the price at which RBI lends money to the commercial banks in occasions of cash shortage. Also, the same interest rate is used to restrict inflation. In case of inflation, RBI enhances the repo rate, so the commercial bank gets discouraged from availing funds from the Central Bank of India. In case commercial banks do not avail money from the central bank, it lowers the money supply in the economy and assists control inflation. But the opposite stance is taken if there’s no inflation.

What are the current repo rate and reverse repo rate?

The current repo rate is 5.40 per cent, while the reverse repo rate is 3.35 per cent.