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what is repo rate?
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Answer Posted / ashish srivastav
Repo is short term whereas Bank rate is long term. Thus
Repo rates are also called short term lending rate and Bank
rates are called long term lending rates. Now if the Repo
rate > Bank rate, it signifies that short term borrowing of
funds is more expensive for commercial banks. Incedentally,
this short term borrowing through Repo is required by the
banks to maintain its CRR. Thus if Repo rate is increased,
bank will reduce its lending to public because to maintain
the CRR bank will have to now borrow from RBI at a higher
Repo rate. Thus increase of Repo is done to suck liquidity
from the economy.
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