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Repo Rate and Reverse Repo Rate

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Repo Rate and Reverse Repo Rate
Repo Rate and Reverse Repo Rate

Here, you Learn about what is Repo Rate & Reverse Repo Rate. and, we give you a rate of Interest that RBI is charge for Repo Rate and Reverse Repo Rate.

Repo Rate

When commercial banks need funds for very short period, they sell some securities which are held by them to RBI with a repurchase agreement at a particular rate. This rate is called the repo rate.

Here, Funds require for short period means it may be for 1 day, 7 days, 15 days, etc.

Repo Rate is the rate at which RBI lends to its clients generally against government securities.

The word “repo’ is used for the term “repurchase rate’. Banks sell government securities to RBI in order to raise money for a very short term with a condition to repurchase them at some discount. Such a discounting rate is repurchase rate/repo rate.

Repo Rate
Repo Rate

In the event of inflation, central banks increase repo rate as this acts as a disincentive for banks to borrow from the central bank. Subsequently, they lend to the general public at higher rate and ultimately people borrow less and thus money supply and inflation are arrested.

Reverse Repo Rate

The agreed upon rate at which the RBI repurchases its securities from the commercial banks in the event when the RBI has to borrow short term funds from the commercial banks by parking its securities with the commercial banks it’s called Reverse Repo rate.

Reverse repo rate is the rate at which RBI borrows money from the commercial banks.

Even the RBI sells government securities held by it to commercial banks under the condition of repurchasing those at a discounted rate upon the end of the short term period.

An increase in reverse Repo rate means that commercial banks will get more incentives to park their funds with the RBI by lending more to RBI, thereby decreasing their lending to general public and ultimately reducing the supply of money in the market and vice-versa.

repo rate and reverse repo rate
repo rate and reverse repo rate

Thus, for your reference we provides to you the list of Interest Rate in past few years.

Year Repo Rate (in %) Reverse Repo Rate (in %)
January, 2006 6.50 6.50
March, 2010 5.0 3.50
April, 2016 6.5 6

Above information obtain from the official website of RBI. If you don’t know about the RBI. And, how RBI is working and what are the Functions of RBI. Then you can read our earlier article on RBI. By clicking on the following link.



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