What is reserve repo rate?
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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.
Description: 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.
Description: 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.
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Reverse Repo Rate :
The rate at which the RBI accepts deposits from the commercial banks ( through government securities) is called Reverse Repo Rate . It is also called ' Reverse Repurchase Rate ' .
in this case a reverse repurchase agreement is signed by both the parties stating that the securities will be repurchased on a given date at a predetermined price .
Reverse Repo rate allows the commercial banks to generate interest income .
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