what is the difference between repo rate and bank or
discount rate ?
and
as discount rate are determined by central bank is repo rate
is determined by MPC monitary policy comittee?
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Answer Posted / sakthidharan
Repo or Repurchase 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.
Bank Rate
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, 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.
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