Repo Rete-Reverse repo rate – Repo rate India

Repo Rete

The rate of interest based on which the Reserve Bank tries to inject liquidity into the economy 

Repo Rete

Under this, in commerce, money is borrowed from the Reserve Bank on the basis of a promise to buy back government securities for a short period of time. In this context, they deposit government securities with the Reserve Bank and with the completion of the predetermined time such as 7 days, 14 days etc., withdraw those securities and return the money to the Reserve Bank.

The liquidity taken by the banks under the repo rate is used to remove the  temporary mail matches coming in the cash flow.

At present commercial banks can borrow not more than 1% of their NDTL from Reserve Bank of India under the repo window.
Its SUB  division is as follows
1. 0.25%—— overnight
2. 0.75%——–7 days / 14 days

In India, the repo rate is also used as the policy rate, changes in it give an idea of the monetary policy stance.

At present, the Reserve Bank operates the monetary trams mission  mechanism through the repo rate, under this, by changing the interest rates, it tries to affect the commodity economy, the goods economy.

If the Reserve Bank reduces the repo rates, it is believed that commercial banks will also reduce their interest rates. Because the demand for liquidity fulfills the purpose, so due to that the commodity demand will increase, then due to increase in demand G.D.P. Will increase if the reason for the decrease in demand is not seen as in countries like India, the monetary transmission mechanism has weakened in the context of interest rate cuts in India.

Repo access for Reserve Bank of India

In India, the Reserve Bank of India (RBI) uses Repo and Reverse Repo to increase or decrease the money supply in the economy. When RBI lends to commercial banks, it is called repo rate. In times of inflation, RBI hikes the repo rate thereby discouraging banks to borrow money and reducing the money supply in the economy. RBI has reduced the repo rate to 5.15% as of October 2019

Reverse repo rate

The reverse repo rate has been reduced to 4.90%. Reverse repo rate is the rate at which banks get interest on the money deposited by them with RBI. Reverse repo rate is useful in controlling the liquidity of cash in the markets. Whenever there is a lot of cash in the market, the RBI increases the reverse repo rate, so that the bank can deposit its money with it to earn more interest.

Liquidity adjustment facility

banks rbi case of : emergency
fulfil crr/ slr
rete rate
interest paid by bank to rbi
reverse repo rate –
interest paid by rbi to bank in case rbi borrows from a bank
interest paid by bank to rbi
bank provides collater (g- secs)

Repo Rete

repurchase option
agreement between bank and and rbi – bank promises to repurchase g / sec after repo period
repo period – overnight 7 days (term repo )

Repo Rete

Read also

objective economic planning in India


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