What is Repo Rate and Reverse repo rate?

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What is the Repo rate and Reverse repo rate?

Repo and reverse repo rates are the primary tools that the RBI uses to control the level of interest rates in the economy. Repo stands for the Repurchase Agreement.

Repo Rate

The Repo Rate is the rate at which the RBI lends money to banks for short durations. Cutting the repo rate would mean that banks can borrow money from the RBI at a cheaper rate and can thus, in turn, lend out money at a cheaper rate as well - this incentivizes businesses and individuals to borrow money and increase spending/investments.

Reverse Repo Rate

The Reverse Repo Rate is the rate at which banks can park their money with the RBI. Cut in reverse repo rate discourages banks from parking idle funds with the RBI and increase lending instead.


Please comment below and let me know if you want me to explain any other financial term.

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