What is Borrowing cost for commercial bank means???
It is the rate of interest paid by commercial banks on the amount it borrows from RBI. Commercial banks borrow from RBI to maintain SLR?CRR Ratios or to meet its liabilities.
High repo rate is the rate at which Commercial Banks borrow from RBI. It requires collateral and is a short term borrowing,
Higher repo rate implies higher cost of borrowing. RBI maiontains high repo rates during inflation to control credit creation(multiplier concept). High repo rate discourages banks to borrow from RBI and lend it to people. It controls money supply
RBI maintains low repo rate during deflation/low inflation to encourage lending by commercial banks. Lending loans by commercial banks will increase investment in the country.
Hope This Helps!! Cheers!
High repo rate is the rate at which Commercial Banks borrow from RBI. It requires collateral and is a short term borrowing,
Higher repo rate implies higher cost of borrowing. RBI maiontains high repo rates during inflation to control credit creation(multiplier concept). High repo rate discourages banks to borrow from RBI and lend it to people. It controls money supply
RBI maintains low repo rate during deflation/low inflation to encourage lending by commercial banks. Lending loans by commercial banks will increase investment in the country.
Hope This Helps!! Cheers!