How rise and fall in the repo rate and reverse repo rate affect the liquidity position of a country?
Answers
Explanation:
Definition: Reverse repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) borrows money from commercial banks within the country. It is a monetary policy instrument which can be used to control the money supply in the country.
An increase in the reverse repo rate will decrease the money supply and vice-versa, other things remaining constant. An increase in reverse repo rate means that commercial banks will get more incentives to park their funds with the RBI, thereby decreasing the supply of money in the market.Current repo rate is 6.25%. Reverse Repo Rate: Reverse repo is an opposite contract to the Repo Rate. Reverse Repo rate is the rate at which Reserve Bank of India borrows funds from all the other commercial banks in the country