Question

How banks utilize funds borrowed from repo rate to return with interest over a day

Answer 1

NEW DELHI: Repo or repurchase rate is the interest at which the Reserve Bank of India (RBI) lends money to the banks. ... In the event of inflation, RBI increases repo rate as this acts as a disincentive for banks to borrow. This ultimately reduces the moneysupply in the economy and thus helps inarresting inflation.

Answer 2

If the RBI wants to make it more expensive for banks to borrow money, it increases the repo rate. Similarly, if it wants to make it cheaper for banks toborrow money, it reduces the repo rate. ... The banks use the reverse repofacility to deposit their short-term excess funds with the RBI and earninterest on i