What is meant by Repo Rate and Reverse Repo Rate.
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Answer / sonali
Repo rate is the interest rate at which the reserve bank of
India lends mney to other banks.
Reverse repo rate is return banks earn on excess funds
parked with the central bank against Government securities.
|Is This Answer Correct ?||507 Yes||98 No|
Answer / amar vyas
We are explaining the different rates in monetary policy
used by RBI
Repo (Repurchase) Rate
Repo rate is the rate at which banks borrow funds from the
RBI to meet the gap between the demand they are facing for
money (loans) and how much they have on hand to lend.
If the RBI wants to make it more expensive for the banks to
borrow money, it increases the repo rate; similarly, if it
wants to make it cheaper for banks to borrow money, it
reduces the repo rate.
Reverse Repo Rate
This is the exact opposite of repo rate.
The rate at which RBI borrows money from the banks (or
banks lend money to the RBI) is termed the reverse repo
rate. The RBI uses this tool when it feels there is too
much money floating in the banking system
If the reverse repo rate is increased, it means the RBI
will borrow money from the bank and offer them a lucrative
rate of interest. As a result, banks would prefer to keep
their money with the RBI (which is absolutely risk free)
instead of lending it out (this option comes with a certain
amount of risk)
Consequently, banks would have lesser funds to lend to
their customers. This helps stem the flow of excess money
into the economy
Reverse repo rate signifies the rate at which the central
bank absorbs liquidity from the banks, while repo signifies
the rate at which liquidity is injected.
This is the rate at which RBI lends money to other banks
(or financial institutions .
The bank rate signals the central bank’s long-term outlook
on interest rates. If the bank rate moves up, long-term
interest rates also tend to move up, and vice-versa.
Banks make a profit by borrowing at a lower rate and
lending the same funds at a higher rate of interest. If the
RBI hikes the bank rate (this is currently 6 per cent), the
interest that a bank pays for borrowing money (banks borrow
money either from each other or from the RBI) increases.
It, in turn, hikes its own lending rates to ensure it
continues to make a profit.
Call rate is the interest rate paid by the banks for
lending and borrowing for daily fund requirement. Si nce
banks need funds on a daily basis, they lend to and borrow
from other banks according to their daily or short-term
requirements on a regular basis.
Also called the cash reserve ratio, refers to a portion of
deposits (as cash) which banks have to keep/maintain with
the RBI. This serves two purposes. It ensures that a
portion of bank deposits is totally risk-free and secondly
it enables that RBI control liquidity in the system, and
thereby, inflation by tying their hands in lending money
Besides the CRR, banks are required to invest a portion of
their deposits in government securities as a part of their
statutory liquidity ratio (SLR) requirements. What SLR does
is again restrict the bank’s leverage in pumping more money
into the economy.
|Is This Answer Correct ?||203 Yes||7 No|
Answer / inder singh
repo rate is the rate at which RBI lends money to other
and Reverse repo rate as the name suggests is the Rate at
which RBI borrows from other commercial banks.
|Is This Answer Correct ?||232 Yes||49 No|
Answer / shrikant.ramchandra.gadade
Meaning of epo Rate-A repo or more broadly, a repurchase
agreement, is normally a contract through which a seller of
securities promises to buy them back at a later date for a
mutually agreed price. Overnight repo, term repo, reverse
repo, purchase agreement, buyback, and leaseback are some
of the other related terms used in these kinds of
Financial instruments like treasury or government bills,
treasury/government or corporate bonds, and stocks/shares
are offered as securities in a repurchase agreement.
Typically, in this agreement, a prospective seller submits
the instruments for cash, with a promise to repurchase them
from the buyer at a specified time. The sum being repaid is
always greater than the sum received at the time of
agreement. The difference amount is termed as repo rate.
A repo differs marginally from a loan transaction. While
taking a loan, the debtor places the instruments under a
lien to the lender. Physical possession of the securities
lies with the lender during the tenancy of the loan. When
the loan is fully settled, the borrower gets back the
ownership of the securities. If the debtor fails to clear
the loan, the lender can dispose of the securities to
recover the dues. If the sale value of the securities is
lesser than the total loan amount, the creditor holds the
legal right to recover the balance amount from the debtor.
In the case of a repo, the cash provider can liquidate the
securities if the seller defaults in the repurchase of the
instruments. However, the repo buyer cannot recover the
full amount, if the sale value of the securities is lesser
than the cash lent originally. This can happen if the
instruments had depreciated in value during the repo
agreement period. On the other hand, if the securities had
appreciated during that period, the buyer stands to make a
fair profit. Thus, a repo transaction carries a definite
element of risk. Normally, repos are invariably
overcollateralized to reduce the amount of risk involved.
Daily market-to-market margining is also resorted to in
|Is This Answer Correct ?||51 Yes||12 No|
Answer / shrikant ramchandra gadade
Discount rate at which a central bank repurchases
government securities from the commercial banks, depending
on the level of money supply it decides to maintain in the
country's monetary system. To temporarily expand the money
supply, the central bank decreases repo rates (so that
banks can swap their holdings of government securities for
cash), to contract the money supply it increases the repo
Alternatively, the central bank decides on a desired level
of money supply and lets the market determine the
appropriate repo rate.
|Is This Answer Correct ?||54 Yes||38 No|
Answer / dean
Repo rate is the rate at which the banks can borrow money
from a central bank of the country in order to avoid
scarcity of funds.For eg, whenever the banks have any
shortage of funds they can borrow it from Reserve Bank of
India (RBI). Thus Repo rate is the rate at which our banks
borrow rupees from RBI. A reduction in the repo rate will
help banks to get money at a cheaper rate. When the repo
rate increases borrowing from RBI becomes more expensive.
It is also a financial & economic tool in the hands of
government to control the availability of money supply in
the market by altering the repo rate from time to time.
Reverse repo rate is return banks earn on excess funds
parked with the central bank against Government securities
|Is This Answer Correct ?||21 Yes||6 No|
Answer / email@example.com
Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. Banks are always happy to lend money to RBI since their money are in safe hands with a good interest. An increase in Reverse repo rate can cause the banks to transfer more funds to RBI due to this attractive interest rates. It can cause the money to be drawn out of the banking system.
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Answer / rajesh
repo rate is a rate which RBI lends to other bank.
reverse repo rate is rate that which RBI takes the money
from other bank of excess fund
|Is This Answer Correct ?||13 Yes||2 No|
Answer / renu
the current repo rate is 4.75% and the reverse repo rate is
|Is This Answer Correct ?||14 Yes||4 No|
Answer / avinesh
A Repurchase agreement (also known as a repo or Sale and
Repurchase Agreement) allows a borrower to use a financial
security as collateral for a cash loan at a fixed rate of
interest. In a repo, the borrower agrees to immediately
sell a security to a lender and also agrees to buy the same
security from the lender at a fixed price at some later date
A Reverse Repo is simply the same repurchase agreement from
the buyer's viewpoint, not the seller's. Hence, the seller
executing the transaction would describe it as a 'repo',
while the buyer in the same transaction would describe it
a 'reverse repo'. So 'repo' and 'reverse repo' are exactly
the same kind of transaction, just described from opposite
|Is This Answer Correct ?||18 Yes||9 No|
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