Thread by @myfinology

RBI keeps the #RepoRate unchanged!

What is Repo & how does it mean for investors, borrowers and customers?

Read the 🧵to make sense

Do ‘re-tweet’ & help us educate more investors

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#RBI #RBIMonetaryPolicy #investing

Repo rate is a type of interest rate!

Interest rate influences the willingness to save and borrow money and also gives insight into future economic and financial market activity.

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What interest rates mean to different stakeholders :

- Borrower : It the price he pays for the use of money (loan)

- Lender like banks : The "fee" earned for taking the risk to extend loan

- Saver & investor : The return on investment from savings a/c ,FD or bond

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But why is the repo rate important?

Repo rate is the benchmark interest rate and at this rate RBI lends money to the banks for a short term.

So, if the repo rate is 4%, it means when a bank borrows money from RBI for 1 night, it has to pay interest at 4% per annum.

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Why does RBI change the repo rate?

Repo rate is a powerful medium which helps the central bank in keeping the inflation level, money supply and liquidity in check.

Additionally, the levels of repo have a direct impact on the bank’s cost of borrowing.

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When RBI reduces repo, the bank follows the same which means you will get lower interest on your savings account and FD.

This encourages people to spend money rather than keeping the surplus in their account and this how it boosts consumption in the economy.

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How does rate cut impact borrowers?

The same works in case of borrowers. When there is low demand in the country, RBI cuts repo and the lending rate becomes cheaper

This encourages people to borrow money for different requirements like buying houses, consumer goods etc.

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Rate cut also uplift corporate sector sentiments as with low interest rate, companies can borrow money and invest for their capex requirements.

Then Why does RBI increase Repo? 👇

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When there is a higher amount of money supply in the economy, it results in⤴️ inflation.

To squeeze the excess liquidity from the market, RBI hikes the repo.

Now people would get higher return on FD and would hv to pay higher interest, if they borrow money from d bank.

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How Does it impact equity investors?

Equity investments have an indirect impact of the repo rate changes.

If the interest rate drops, corporate can take loan at reduced rate. This can boost their earnings and cash flow, leading to higher stock prices and vice versa.

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Mostly, it doesn't hv an impact in long run but due to temporary sentiments, it gets reflected in price

At Finology, we alwys try to ignore short term macro factors while picking investment ideas

Visit Recipe.finology.in to access our handpicked stocks & MF picks

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The repo rate has been kept unchanged at 4% for the 10th time in a row in the bi-monthly policy meeting held on Feb 10.

As per Governor Shaktikanta Das, the decision has been taken to support economic growth and continue to mitigate the impact of Covid on the economy.

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