Repo Rate Vs Reverse Repo Rate: Understand Key Difference
By Anshika Verma07, Jun 2024 02:39 PMjagranjosh.com
Reserve Bank Of India
RBI declared that the repo rate will remain same for the eight time taht is 6.5%. Let’s understand the key differences between the repo arte and reverse repo rate. Tap to read!
Repo Rate
The interest rate at which the Reserve Bank of India (RBI) lends loans to commercial banks is known as the repo rate. ‘Repo’ is a contraction of the word ‘repurchase agreement.’
Reverse Repo Rate
The commercial banks charge the RBI a reverse repo rate when the RBI borrows from them. The commercial banks get interest from the RBI in exchange for selling them securities.
Nature of Transaction
In repo rate, the Central Bank plays the role of lender, giving money to commercial banks. In reverse repo rate, The Central Bank becomes the borrower.
Objective
Controlling inflation, influencing the money supply, and maintaining financial system liquidity. To encourage banks to deposit excess funds with the Central Bank to decrease the amount of money.
What happened in Reverse repo rate?
Securities are bought by the central bank from commercial banks with the understanding that they will be sold back at a certain price later.
What happens in Repo Rate?
A repo transaction, to put it simply, is a short-term borrowing arrangement in which financial institutions, usually commercial banks, sell assets to the RBI.
Information Credit
All these information is taken from a verified source taht is IIFL Finance.
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