What is REVERSE REPO RATE

  Publishing date:- 17 April 2020

                   

                  Image credits- canva.com

☆All you need to know about Reverse repo rate

  ●  What is reverse repo rate?

  Ans- reverse repo rate means reverse                     repurchase agreement rate.

           It is the rate at which a country's                     central bank withdraws money from             the commercial banks of that                           country  in order to maintain the                     liquidity and money supply within                 the country.

          By the way,it is the reverse of repo                  rate(check below about repo rate).

 1.)  In case of India, the rate at which Reserve Bank of India (RBI) will borrow money from its commercial banks will be the reverse repo rate.

 2.)  An increase in the reverse repo rate leads to decrease in the money supply in the country as more amount of money will be fetched by the central bank.

              But,there will be no impact on other things related to it means other parameters will be same.

 3.)   In other words we can say that, it is a method to restrict the borrowing power of investors as well as to restrict the excess liquidity in the market.

4.)   Banks receive the interests from the central bank for their holdings by giving money. In this way, banks get benefit out.

 This rate is increased within the country, when it faces a high level of inflation.

 ● Fact:- Repo rate is generally higher than                    reverse repo rate.

                

                 

             

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 5.) The best example to understand the reverse repo rate is in the current situation of coronavirus pandemic.

     RBI (Reserve bank of India) just cuts the rate to 3.75% to inject liquidity in the market.

  6.)  This is because, the slowing down of most of the economic activities in the country amid the pandemic leading to lack of liquidity in the market.

  So, this has been reduced to maintain the surplous amount of funds in the market  in these times.

☆ Difference between a repo rate and reverse repo rate

REPO RATE:- 

 1.) It is the rate at which commercial banks borrow short term money from RBI.

 2.) It helps to absorb excess liquidity from the market.

 3.) This mechanism is used to control the inflation of the country.

 REVERSE REPO RATE:-

 1.) rate at which...... oh you know the definition at the top of the page so let's skip😋

 2.) It helps to inject liquidity in the market.

 3.) It is the way to control money supply within the country.

 》》》 This was what I know hope you will like 

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