Repo rate is the rate at which the reserve bank of India on
deficit borrows from the commercial banks. and reverse repo
rate is the interest rate at which RBI lends to the
commercial banks....
repo rate is the rate at which rbi discount securities like
treasury bill to the bank. To meet certain liquidity
standards ,from time to time, banks sell their securities
like treasury bills to rbi at a discount price called
reporate ,for a short period of time like overnight or fort
night . after specified time banks repurchase the bill at
its face value. so high repo rate high loss for banks or
hike in reporate absorbe liquidity from the market by less
lending to the banks, which in turn tame inflation.
Repo and Reverse Repo are tools available in the hands of
RBI to manage the liquidity in the system. It either
injects liquidity into the market if the conditions are
tight or sucks out liquidity if the liquidity is excess in
the system through the Repo and Reverse Repo mechanism,
besides a host of other measures.
Now in REPO RBI injects liquidity into the system i.e. it
purchases the securities from the banks and lends money to
them to ease their liquidity crunch. The rate charged by it
for lending money is the REPO rate.
Reverse REPO is the opposite of REPO: When liquidity is
excess in the system. RBI sucks it out by Reverse REPO by
lending securities and taking out money from banks. The
rate charged for it is the Reverse Repo rate.
These rates, form the bottom and the top of the Call money
lending/borrowing of the banks. The call money rates
generally fall in between this corridor.
Repo rate is the rate at which banks borrow funds from the
RBI to meet the gap between the demandthey are facing for
money (loans) and how much they have on hand to lend. If
RBI wants to make it more expensive for the banks to borrow
money, it reduces the repo rate.
repo rate is the rate of interest which is fixed by rbi to
lend money to bank & taking bank securites.
reverse repo rate is the rate at which rbi taking out money
from the bank and return the bank security to the bank it
is also decided by rbi itself.
repo rate and reverse repo rate both are decided by rbi to
control thr liqudity in the system.
repo rate increase to inject liqudity in the system and
reverse repo rate decided to taking out money(sucking out)
in the system.