Question

How repo rate and reverse repo rate control money supply in nation?

Answer 1

Answer:

It is a monetary policy instrument which can be used to control the money supply in the country.

Description: An increase in the reverse repo rate will decrease the money supply and vice-versa, other things remaining constant.

Answer 2

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A high repo rate helps drain excess liquidity from the market, whereas a high reverse repo rate helps inject liquidity into the economic system. The repo rate is always higher than the reverse repo rate. Repo rate is used to control inflation and reverse repo rate is used to control the money supply.