The Reserve Bank of India or RBI is like the boss of all the banks in the country. One of the things the RBI does is regulate the interest rates offered by banks.
Interest rates are like the extra money we have to pay when we borrow money from a bank. For example, if we borrow 100 rupees from the bank, we might have to give back 105 rupees. The extra 5 rupees is the interest.
The RBI keeps an eye on the interest rates that banks charge as it wants to make sure that banks don't over or undercharge.
To regulate interest rates, the RBI does a few things:
Setting the Repo Rate | Bank's Borrowing from RBI | Monetary Policy |
| The RBI sets a special interest rate called the "repo rate." This is like a benchmark for all the other interest rates. When the RBI changes the repo rate, it can directly affect the interest rates that banks offer. | Sometimes, banks need money to run their operations. They can borrow money from the RBI, but they have to pay interest on that money. The interest rate that the RBI charges banks can also affect the interest rates banks offer to borrowers. | The RBI makes something called "monetary policy." It's like a plan that helps the RBI control the flow of money in the country. The monetary policy can include decisions about interest rates. If the RBI wants to encourage borrowing, it might lower interest rates. If it wants to control inflation (when things become more expensive), it might increase interest rates. |
By doing these things, the RBI tries to make sure that interest rates are fair and balanced.
