Bench mark interest rates is lowest interest rate for which an investor like to invest or borrow money from the bank or invest in securities(shares). In other words , it is the base rate for those who want to compare their borrowing with the share market. RBI sets the benchmark rate, the government wants to keep the rate low enough to promote lending and financial growth, but not so low that there is no opportunity for profit. Central banks actually set several interest rates; the rate of most interest is the rate for overnight lending.
Benchmark rate is inversely proportional to the economy,which means if the benchmark rate increases the share market price will go down and vice versa. Government securities use these benchmark rate to decide their rate of return. The rate of interest is low in government securities as low risk is involved in such securities.If you invest in private securities , the interest rate will be high but the risk involved will also be high.Even for people who are not planning on investing or taking out a loan, it can be beneficial to pay attention to the benchmark rate and its fluctuations. Most newspapers announce changes in the rate, as do news broadcasts. Changes in the rate can be warning signs that the government is concerned about the flow of funds; if the rate is dramatically reduced, for example, it indicates that officials are worried about a credit freeze. If the rate is raised, it can indicate that an economy is in good condition.
The current benchmark rate is the 7% as on 27/8/2011. which has moved up from 6.50%.This had an huge impact on the share markets. Benchmark rates has been increased to control the inflation which rapidly increasing and affecting the world economy
