The Reserve Bank of India (RBI), in its credit policy announcement today, hiked repo by 25 basis points (bps) and the reverse repo by 50 basis points (bps). The repo now stands at 6% while reverse repo stands at 5%.
What is a Repo Rate?
Repo rate is the rate at which our banks borrow rupees from RBI when banks have a shortage of funds.
A reduction in the repo rate will help banks to get money at a cheaper rate.
When the repo rate increases borrowing from RBI becomes more expensive.
What is a Reverse Repo Rate?
Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks.
Banks are always happy to lend money to RBI since their funds (with RBI) are earning a risk free interest income.
Repo rate is the rate at which our banks borrow rupees from RBI when banks have a shortage of funds.
A reduction in the repo rate will help banks to get money at a cheaper rate.
When the repo rate increases borrowing from RBI becomes more expensive.
What is a Reverse Repo Rate?
Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks.
Banks are always happy to lend money to RBI since their funds (with RBI) are earning a risk free interest income.
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