What is meant by Repo Rate and Reverse Repo Rate.
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Answer Posted / kavita poddar
Repo (Repurchase) rate is the rate at which the RBI lends
shot-term money to the banks. When the repo rate increases
borrowing from RBI becomes more expensive. Therefore, we
can say that in case, 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 is the rate at which banks park their
short-term excess liquidity with the RBI. The RBI uses
this tool when it feels there is too much money floating in
the banking system. An increase in the reverse repo rate
means that the RBI will borrow money from the banks at a
higher rate of interest.
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