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Hike in Repo rate might lead to Increase in which of the following?
- Repo-linked lending rates
- Minimum cost of funds based lending rates (MCLR)
- Equated monthly instalments of existing borrowers
Select the correct answer code:
- a)1 only
- b)1, 2
- c)1, 3
- d)1, 2, 3
Correct answer is option 'D'. Can you explain this answer?
Most Upvoted Answer
Hike in Repo rate might lead to Increase in which of the following? Re...
Hike in Repo rate and its Impact
Repo rate is the rate at which the central bank of a country lends money to commercial banks in case of a shortfall of funds. When there is a hike in the repo rate, it has several implications on the economy and the financial system. Let us analyze the impact on different aspects:
1. Repo-linked lending rates:
When the repo rate increases, it directly affects the repo-linked lending rates. Banks borrow from the central bank at a higher rate, and this cost is passed on to the borrowers. Therefore, a hike in the repo rate leads to an increase in the repo-linked lending rates. This affects various types of loans such as home loans, personal loans, and business loans.
2. Minimum cost of funds based lending rates (MCLR):
MCLR is the benchmark rate below which banks cannot lend to their customers. It is calculated based on various factors including the repo rate. When the repo rate increases, the cost of funds for banks also increases, and this leads to an upward revision of MCLR. Therefore, a hike in the repo rate will result in an increase in MCLR, which in turn affects the lending rates offered by banks.
3. Equated Monthly Installments (EMIs) of existing borrowers:
Existing borrowers who have taken loans with floating interest rates are also impacted by a hike in the repo rate. As the repo-linked lending rates and MCLR increase, the interest component of the EMIs also increases. This means that existing borrowers will have to pay higher EMIs for their loans.
Conclusion:
In conclusion, a hike in the repo rate has a significant impact on the economy and the financial system. It leads to an increase in repo-linked lending rates, MCLR, and the EMIs of existing borrowers. This can result in a higher cost of borrowing for individuals and businesses, which may impact consumption and investment activities. It is important for borrowers to be aware of these changes and plan their finances accordingly.
Repo rate is the rate at which the central bank of a country lends money to commercial banks in case of a shortfall of funds. When there is a hike in the repo rate, it has several implications on the economy and the financial system. Let us analyze the impact on different aspects:
1. Repo-linked lending rates:
When the repo rate increases, it directly affects the repo-linked lending rates. Banks borrow from the central bank at a higher rate, and this cost is passed on to the borrowers. Therefore, a hike in the repo rate leads to an increase in the repo-linked lending rates. This affects various types of loans such as home loans, personal loans, and business loans.
2. Minimum cost of funds based lending rates (MCLR):
MCLR is the benchmark rate below which banks cannot lend to their customers. It is calculated based on various factors including the repo rate. When the repo rate increases, the cost of funds for banks also increases, and this leads to an upward revision of MCLR. Therefore, a hike in the repo rate will result in an increase in MCLR, which in turn affects the lending rates offered by banks.
3. Equated Monthly Installments (EMIs) of existing borrowers:
Existing borrowers who have taken loans with floating interest rates are also impacted by a hike in the repo rate. As the repo-linked lending rates and MCLR increase, the interest component of the EMIs also increases. This means that existing borrowers will have to pay higher EMIs for their loans.
Conclusion:
In conclusion, a hike in the repo rate has a significant impact on the economy and the financial system. It leads to an increase in repo-linked lending rates, MCLR, and the EMIs of existing borrowers. This can result in a higher cost of borrowing for individuals and businesses, which may impact consumption and investment activities. It is important for borrowers to be aware of these changes and plan their finances accordingly.
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Hike in Repo rate might lead to Increase in which of the following? Re...
The Repo rate hike will force banks and non-banking finance companies to increase repo-linked lending rates and minimum cost of funds based lending rates (MCLR) further. This is because the cost of funds of banks will rise with the Repo rate hike. The net result will be a further rise in equated monthly instalments (EMIs) of existing borrowers. Moreover, new home, vehicle and personal loans will also become costlier. Analysts also say consumption and demand can be impacted by the Repo rate hike.
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Hike in Repo rate might lead to Increase in which of the following? Repo-linked lending rates Minimum cost of funds based lending rates (MCLR) Equated monthly instalments of existing borrowersSelect the correct answer code:a)1 onlyb)1, 2c)1, 3d)1, 2, 3Correct answer is option 'D'. Can you explain this answer?
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