Question

Which of the following is true about the Repo rate and the Reverse Repo Rate?​

Answer 1

• Repo Rate Reverse Repo Rate
• It is the rate at which RBI lends money to banks It is the rate at which RBI borrows money from banks
• It is higher than the reverse repo rate It is lower than the repo rate
• It is used to control inflation and deficiency of funds It is used to manage cash-flow

Answer 2

Answer:

The Repo rate is the rate at which business/commercial banks acquire cash or borrows money from the country's Central bank by selling their resources.

The Reverse Repo rate is the rate at which the Country's central bank borrows money from the commercial banks.

Key differences between repo and reverse repo rates are as follows -

• Repo rate is for the purpose of fulfilling the deficiency of funds, whereas, reverse repo rate is to manage the liquidity in the economy.

• Repo rate is higher than the reverse repo rate.
• Repo rate controls inflation in the economy. Whereas, reverse repo rate controls the money supply in the economy.