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How Repo Rate Influences Share Market

It is well known the relation between Repo Rate and the fluctuations in share market. Repo rate is the rate at which central bank of a country lends money to the commercial banks. If the Repo Rate is high, naturally the interest rate of commercial banks increase. Where the Repo Rate is less, the rate of interest on loans taken by clients from commercial banks will be lower. That gives a chance to invest money in Share Market by speculators by borrowing funds from commercial banks.

Lower interest rate helps people to take gain from the price changes in share market. If the interest rate is high, it discourage people from investing money in share market by borrowing from commercial banks. So the demand for securities decreases and thus the investment in industry reduces. So for the sake of share market, it is better having lower Repo Rate.

So in a nutshell we can say Repo rate is inversely proportional to share market mood and has reverse effect in economy.

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