What is the relationship between Repo Rate and deposit rates offered by banks?

The Repo Rate and deposit rates offered by banks are interrelated, although the relationship may not be direct or immediate. Here's how the Repo Rate can influence deposit rates:

1. Cost of funds: The Repo Rate affects the cost of funds for banks. When the central bank lowers the Repo Rate, it becomes cheaper for banks to borrow funds from the central bank or other sources. This can potentially reduce their cost of funds, including the interest paid on deposits. As a result, banks may have more flexibility to offer competitive deposit rates to attract customers.

2. Competitive market dynamics: Banks operate in a competitive market where they strive to attract deposits from customers. When the central bank lowers the Repo Rate, it generally leads to a reduction in lending rates and borrowing costs. In order to maintain a favorable interest rate spread and remain competitive, banks may adjust their deposit rates accordingly. Lowering deposit rates can help banks reduce their funding costs and align with the overall interest rate environment.

3. Monetary policy transmission: The central bank's monetary policy actions, including changes in the Repo Rate, aim to influence economic activity, inflation, and credit growth. When the central bank reduces the Repo Rate, it intends to stimulate borrowing and spending in the economy. Lower lending rates can encourage individuals and businesses to borrow more, potentially leading to increased demand for loans and deposits. In response, banks may adjust their deposit rates to attract depositors and manage their funding requirements.

It's important to note that the relationship between the Repo Rate and deposit rates is not linear, and other factors can also influence deposit rates. Banks consider various factors, such as market conditions, competition, liquidity needs, and their own funding costs, when determining deposit rates. Additionally, banks' deposit rates may be influenced by their strategic objectives, regulatory requirements, and the overall interest rate environment.

Individuals seeking information on specific deposit rates should directly inquire with their respective banks as rates can vary across institutions and over time.