What is meant by repo-rate and reverse repo-rate?

1.	What is meant by repo-rate and reverse repo-rate?
Answer» Repo rate, or repurchase rate, is the rate of interest at which RBI lends to the Commercial Banks for short periods against government bonds. This is done by RBI by buying government bonds from banks with an agreement to sell them back at a fixed rate. If RBI wants to make borrowing it more expensive, it increases the repo rate. Similarly, if RBI wants to make it cheaper for banks to borrow money from RBI, it reduces the repo rate. Reverse repo rate is the rate of interest at which the RBI borrows from commerical banks for short period. This is done by selling government bonds to banks. Banks utilises the reverse repo rate facilities to deposit their short term excess funds with the RBI and earn interest on it.

Answer»

Repo rate, or repurchase rate, is the rate of interest at which RBI lends to the Commercial Banks for short periods against government bonds. This is done by RBI by buying government bonds from banks with an agreement to sell them back at a fixed rate. If RBI wants to make borrowing it more expensive, it increases the repo rate. Similarly, if RBI wants to make it cheaper for banks to borrow money from RBI, it reduces the repo rate.

Reverse repo rate is the rate of interest at which the RBI borrows from commerical banks for short period. This is done by selling government bonds to banks. Banks utilises the reverse repo rate facilities to deposit their short term excess funds with the RBI and earn interest on it.

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