Benchmark Rate

                          

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

Reverse Repo Rate

               Reverse Repo Rate (RRR) is the rate of interest provided by RBI to other banks for the funds deposited in the RBI. In simple terms, reverse repo rate is that rate at which RBI gets loan.. The current RRR is 7% which has rose from 6.5%. When RBI gets loan from banks at high rate of interest, more and more banks will supply to central bank because it is safe and earning is more. Effect of this will on financial market. Supply of money in financial market will decrease. In economics, it is simple rule, if supply is limited and demand increases, price of product will increase. Bank has lots of demand but due to limitation of supply, bank increases interest rate. That is the reason. But its positive effect will on credit. Due to decrease in the supply of credit in the market, inflation rate will decrease.

Repo rate affecting inflation

Repo Rate

             Repo rate is an interest rate charged by Central bank(RBI in India) for lending money to other banks. The current repo rate in India is 8%. The bank lend money to the public based on these repo rates charged by the central bank. RBI increases and decreases repo rate to control the Inflation. The hike in inflation made RBI to increase the repo rate from 7.25% to 8 % (dated 27/7/2011).The given below fig. describes,how hike in repo rate affects inflation.

In the above fig. describes how the repo rate hike lowers the inflation , it is the duty of RBI to control the inflation.

                            

stock market

Hey guys i am Rakesh from Amrita school of business , Bangalore.In this blog i will be posting all basic terms related to stock market.This is for those who are interested in share/stock market but doesn't know much about it. This blog is to develop my knowledge abt stock market and make my class mates involve in the stock market field and feed them some knowledge about it.It will also include some finance related information like RBI's day to day activity, about interest rates and lots more.

     Let us begin with.......