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Answer Posted / k b prasad rao
Whenever the banks have any shortage of funds they can
borrow it from RBI. Repo rate is the rate at which our
banks borrow rupees from RBI. A reduction in the repo rate
will help banks to get money at a cheaper rate. When the
repo rate increases borrowing from RBI becomes more
expensive. Base on this only banks will increase/decrease
the interest rates to the customers (Housing loan, Fixed
depost rates)
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