One rate, a chain reaction

Watch the chain flip.

India's central bank, the **RBI**, sets the rate at which it lends to banks. Watch what follows when it moves.

The RBI's balancing act

• Repo rate the RBI's key rate — The rate at which the RBI lends money to banks. Banks pass it on: when repo rises, loans to companies and people usually get dearer.
• Growth vs inflation the trade-off — Low rates: easy borrowing, more spending, faster growth, but prices can rise. High rates: slower growth, but inflation is held down.
• Cash reserve ratio (CRR) money banks must park — The share of deposits banks must keep with the RBI. A higher CRR takes money out of the system.
• When it happens a key market event — The RBI's Monetary Policy Committee reviews rates about every two months, and markets watch each decision closely.

Slide the repo rate

Slide the rate.

**Remember:** a higher repo rate makes borrowing dearer for everyone down the chain.

Example: banks are assumed to lend at repo + 3%. Real loan rates vary by bank and borrower.

Why these sectors react first

Tap each sector.

Markets usually don't like rate rises; a surprise cut is usually welcomed. These sectors tend to move first.

Check — Question 3 of 4

Rates rising or falling?

What you now know

• The repo rate is the rate at which the RBI lends to banks.
• Higher rates make loans dearer, slowing growth but cooling inflation; lower rates do the opposite.
• A higher CRR takes money out of the banking system.
• The RBI reviews rates about every two months, a key event for markets.
• Banks, autos, housing finance, real estate and metals usually react first.