Repo rate is the rate at which the Reserve Bank of India lends to its customers against government securities while the reverse repo rate is the rate at which RBI borrows money from the commercial banks. Read what is repo rate and reverse repo rate in detail.
What is Repo and Reverse Repo Rate: Difference| Particulars | Reverse Repo Rate | Repo Rate |
| Borrower and Lender | Borrower: RBI Lender: Commercial Banks |
Borrower: Commercial Banks Lender: RBI |
| Objective of the Borrower | To reduce the overall money supply in the economy |
To manage short-term fund deficiency |
| Function | Commercial banks deposit their excess funds with RBI and receive interest from the deposit. |
Commercial banks receive funds from the reserve bank of India using government bonds as collateral. |
| Rate of Interest | Lower than the repo rate |
Higher than the reverse repo rate |
| Interest Charge Applicable to | Reverse Repurchase Agreement |
Repurchase Agreement |
| Impact of Lower Rate | As banks lend more and reduce their deposits with RBI, the money supply in the economy increases |
Cost of funds is lower for banks, which leads to reduced loan interest rates. |
| Impact of Higher Rate | As commercial banks park more surplus funds with RBI, the money supply in the economy decreases. |
Loans become more expensive as the cost of funds increases for commercial banks. |
I hope I explained the repo rate and reverse repo rate meaning clearly.
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What is repo rate and reverse repo rate?
Bharti
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2021-09-15T16:53:57+00:00 2021-09-16T17:48:40+00:00Comment
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