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about bank rates

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(Querist)
31 October 2008 what is meant by REPO rates what is the use of reducing it
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CA RAMESH KUMAR AHUJA

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CA RAMESH KUMAR AHUJA (Expert)
01 November 2008 Banks take short term loans from RBI , and the interest RBI charges from them is called Repo rate .
How is Repo Rate linked to the interest we pay for loans from Bank ?

Simple , Banks need to charge more interest than they are paying. Banks will charge more than the REPO Rate for loans which they give. If Repo rate comes down , banks may also consider the interest rate they charge us .

Thats the reason that the cut in Reporate creates liquidity of funds and thereby inducing people to invest wherever they think fit and thereby improves the overall economy.
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