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| Repo Rate - Meaning, Current Repo Rate & Reverse Repo Rate |
Repo Rate - Meaning, Current Repo Rate & Reverse Repo Rate
Repo Rate and Reverse Repo Rate in Banking Awareness is one of the very important topic for you if you are involved in preparation of any banking sector exams either it be IBPS, SBI PO, SBI Clerk etc.
One or more questions will be there in your banking examination question paper from Repo Rate and Reverse Repo Rate.
Repo Rate and Reverse Repo Rate are two important instruments of monetary policy used by Reserve Bank of India.
Under this article, we will cover the following :
1. Repo Rate Full Form
Repo Rate stands for Repurchasing Option Rate. It is one of the most important instruments of monetary policy used by RBI to control inflation and excessive money supply.
2. What is Repo Rate ?
Repo Rate in banking is the rate at which RBI provides overnight liquidity to all commercial banks in India in case of shortage of funds under liquidity adjustment facility ( LAF ).
In order to borrow funds from Reserve Bank of India, commercial banks need to deposit their securities and bonds to RBI. The repurchasing of those securities and bonds from RBI after a certain time on certain rate of interest is defined as Repurchasing Option Rate or Repo Rate.
3. What is Reverse Repo Rate ?
Reverse Repo Rate is the opposite agreement to Repo Rate. Reverse Repo Rate is defined as the rate at which RBI borrow funds from commercial banks in India.
All commercial banks deposit their excess funds to Reserve Bank of India for a certain period of time on a certain rate of interest. This rate of interest is termed as Reverse Repo Rate.
4. Impact of Repo Rate on Indian Economy
A. Impact on Indian Economy if the Repo Rate is increased
When RBI increases Repo Rate, it becomes costlier for all commercial banks in India to borrow money from RBI for a short period of time. This leads to increase in rate of interest on all types of loans.
As a result, Excessive interest rates on bank loans discourages the customers from availing any credit. This reduces the money supply in the market and finally the liquidity in the system is maintained and thus inflation is controlled.
B. Impact on Indian Economy if the Repo Rate is decreased
When RBI decreases Repo Rate i.e. Repo Rate cut by RBI, it becomes easier for commercial banks to borrow money from RBI at cheaper rates for a short period of time.
As a result, commercial banks offer loans to their customers at a very cheaper rate of interest. This leads to rise in a number of startup companies or businesses or investment in goods and services. As a result, it boosts the growth rate of the economy.
5. Current Repo Rate
Present Repo Rate fixed by Reserve Bank of India is 5.75 %
6. Current Reverse Repo Rate
Present Reverse Repo Rate fixed by Reserve Bank of India is 5.50 %
7. Difference between Repo Rate and Reverse Repo Rate
| # | Repo Rate | Reverse Repo Rate |
|---|---|---|
| 1. | Repo Rate is the rate at which RBI lends money for a short period of time | Reverse Repo Rate is the rate at which RBI borrows money from commercial banks |
| 2. | Repo Rate is always higher than Reverse Repo Rate | Reverse Repo Rate is always less than Repo Rate |
| 3. | Repo Rate is used to control Inflation | Reverse Repo Rate is used to control money supply |
| 4. | Repo Rate at present is 5.75 % | Reverse Repo Rate at present is 5.50 % |
8. Important Points to Remember under Repo Rate and Reverse Repo Rate
A. Repo Rate stands for Repurchasing Option Rate.
B. Repo Rate is the rate at which RBI lends money for a short period of time.
C. Reverse Repo Rate is the rate at which RBI borrows money from commercial banks.
D. Repo Rate is always higher than Reverse Repo Rate.
E. Repo Rate at present is 5.75 % and Current Reverse Repo Rate is 5.50 %.
F. Decrease in Repo Rate by RBI is also termed as Repo Rate cut by RBI.
9. Questions asked in competitive exams on Repo Rate and Reverse Repo Rate
| Q 1. What is current Repo Rate defined by RBI ? |
|---|
| A. 3 % |
| B. 4 % |
| C. 5.25 % |
| D. 5.75 % |
| Q 2. Which of the following statement is true ? |
|---|
| A. Repo Rate is greater than Reverse Repo Rate |
| B. Repo Rate is smaller than Reverse Repo Rate |
| C. Repo Rate is equal to Reverse Repo Rate |
| D. None of These |
| Q 3. What is the Reverse Repo Rate at present in India ? |
|---|
| A. 4.25 % |
| B. 5 % |
| C. 5.25 % |
| D. 5.50 % |
| Q 4. The rate at which RBI borrows money from bank is called as ______. |
|---|
| A. Repo Rate |
| B. Cash Reserve Ratio Rate |
| C. Reverse Repo Rate |
| D. Bank Rate |
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