What is Repo Rate and Reverse Repo Rate? Can you tell the basic difference between the two?
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Answer Posted / Firatoo Prasad
Repo Rate (Repurchase Agreement Rate) is the interest rate at which commercial banks lend unsecured funds to each other for a short period, usually overnight. It is set by the central bank to control inflation and maintain liquidity in the market. Reverse Repo Rate, on the other hand, is the interest rate at which the central bank borrows funds from commercial banks for a short term, also usually overnight. The basic difference between the two is that the Repo Rate applies when banks lend to each other, while the Reverse Repo Rate applies when banks lend to the central bank.
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