Reverse Repo Rate

                  

#TermoftheDay - Reverse Repo Rate

Balesh Daga says rate at which RBI lends money to the banks.

Harshil Shah adds Reverse Repo rate is the short term borrowing rate at which RBI borrows money from banks. RBI uses this tool when it feels there is too much money floating in the banking system and wants to reduce the money flow in the market. This can also be used to reduce the inflation rate in very short period.  But it has both pros and cons

Tanmoy Mallick further adds RBI lends to commercial banks at repo rate against approved securities. So under falling repo rate, lending rates come down and borrowing from RBI becomes cheaper.

The falling repo rate indicates cheap money policy increasing money supply in the country. This revives economic growth. 

Similarly reverse repo rate is the rate at which RBI buys back securities from banks reducing money supply in the economy. This contains inflationary pressure by reducing money supply.

There is always a margin (0.5 to 1%) of difference between repo and reverse repo rate and repo rate is higher than reverse repo rate.

To join us on whatsapp, fill your data here. Mention "Trading Terminology" in reference column