Well, well, well, the Repo rate remains unchanged at 6.5%. Did you hear that? Yes, the Reserve Bank of India (RBI) recently announced its decision to maintain the status quo on the repo rate.
Before we delve into the implications of this decision, let’s quickly understand what repo rate is. Repo rate is the rate at which commercial banks lend a part of their deposits to the central bank. Any rise in the repo rate attracts commercial banks to lend more deposits to the central bank.
Now, let’s talk about inflation. It is the increase in price of goods and services. The rise in price of goods is due to its growing demand and the demand for goods grows when the economy altogether spends more. Inflation in the Indian economy hit spooking 7.8% in April 2022. To curb its devil effect, RBI increased the Repo rate by 40 bps in May and another 50 bps in June 2022.
Here’s the interesting part – when RBI increases Repo rate, banks are willing to lend their deposits to the Central bank to gain more interest on their deposits. This reduces retail lending. Any curtailment in retail lending leads to a fall in the circulation of money in the economy. This liquidity shortfall, thus, cuts the growing demand. Finally, the prices of goods and services touch equilibrium and inflation is controlled.
Now, coming back to the present, RBI’s decision to keep the repo rate unchanged comes as a relief to many borrowers. However, this decision also has a significant impact on the investment market, especially the bond market. This move by RBI can be a time machine for bond investors to enter in bond markets.
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In conclusion, RBI’s decision to maintain the repo rate at 6.5% has brought relief to borrowers and presented a great opportunity for bond investors. At AlgoBulls, we believe that this is the right time to invest in risk-free assets with the right partners. So, what are you waiting for? Come join us on this exciting investment journey!