WHAT IS DIFFERENCE BETWEEN BANK RATE & REPO RATE
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Answer Posted / ambika
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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