Answer Posted / ridhvik

Repo and Reverse Repo are tools available in the hands of
RBI to manage the liquidity in the system. It either
injects liquidity into the market if the conditions are
tight or sucks out liquidity if the liquidity is excess in
the system through the Repo and Reverse Repo mechanism,
besides a host of other measures.

Now in REPO RBI injects liquidity into the system i.e. it
purchases the securities from the banks and lends money to
them to ease their liquidity crunch. The rate charged by it
for lending money is the REPO rate.

Reverse REPO is the opposite of REPO: When liquidity is
excess in the system. RBI sucks it out by Reverse REPO by
lending securities and taking out money from banks. The
rate charged for it is the Reverse Repo rate.
These rates, form the bottom and the top of the Call money
lending/borrowing of the banks. The call money rates
generally fall in between this corridor.

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