What is Repo Rate?

The repo rate is the rate at which banks borrow funds from the Reserve Bank of India against eligible collateral. The RBI uses the repo rate as a “monetary policy tool” to influence borrowing costs, liquidity, and economic activity.

If we talk about the RBI repo rate effect on the stock market, a change in the rate may potentially affect market valuations as follows:

However, stock prices also react to inflation, economic growth, global markets, corporate earnings, and market expectations. Therefore, a repo rate change does not automatically determine the direction of the stock market.

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