What is meant by Repo Rate and Reverse Repo Rate.
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Answer Posted / dean
Repo rate is the rate at which the banks can borrow money
from a central bank of the country in order to avoid
scarcity of funds.For eg, whenever the banks have any
shortage of funds they can borrow it from Reserve Bank of
India (RBI). Thus Repo rate is the rate at which our banks
borrow rupees from RBI. A reduction in the repo rate will
help banks to get money at a cheaper rate. When the repo
rate increases borrowing from RBI becomes more expensive.
It is also a financial & economic tool in the hands of
government to control the availability of money supply in
the market by altering the repo rate from time to time.
Reverse repo rate is return banks earn on excess funds
parked with the central bank against Government securities
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