What is the repo rate?

The repo rate is set by the Reserve Bank’s Monetary Policy Committee and is the rate at which it lends money to the country’s commercial banks. The Reserve Bank adjusts this rate in order to keep inflation within its 3% to 6% target range.

The theory is that by upping the repo rate the Reserve Bank makes it less attractive to borrow money. This reduces the amount of money in the economy, so there’s less to spend. As spending slows its harder to increase prices and this helps keeps inflation in check.

So how does this impact you? When the repo rate goes up the commercial banks and other lenders put up their interest rates. This means, unless you have a fixed interest rate, you will pay more on your loans. In short an increase in the repo rate means the cost of borrowing money increases.

Read more about the Repo Rate.

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