this is the presentation on repo & reverse repo (the repo & reverse repo rates are current rates which are given when this presentation was uploaded,the rates may change according)pls do not refer this rates as its fluctuating
1.Repo rate 1.Repo rate • Introduction:Introduction:How does the RepoRepo affect us? • How does the Rate Rate affect us? • What if the repo rate is lowered:What if the repo rate is lowered: • What if the repo rate is hiked:What if the repo of repos: • Advantages rate is hiked:Advantagesparticipants: • Market of repos:Market participants:
2.Reverse repo rateIntroduction:What happens in reverse repo:Advantages of reverse repo:Repo and Reverse repo in India:Who controls the Repo Rate and reverse repo rate :Current rate:Conclusion :
REPO RATE DEFINITION :-Repo rate or repurchase rate is the rate at whichbanks borrow money from the central bank (RBI).
It is for the short period.The banks sell their securities (financial assets)with an agreement to repurchase it at futuredate at predetermined price.It is also called as a repurchase agreement.
Affects the prime lending rate. The prime lending rate affects the interest rates. Commercial bank charges to their customers. It doesn’t affect fixed rate loans.
• Increase in money supply.• Encourages business growth and consumer spending.• However, an increase in the money supply makes the currency more vulnerable.
Decrease in money supply. Discourages business growth and consumer spending. Hike in repo rate is accompanied by increase in bad debts. Loans get costlier.
1. Increase in turnover in the money market.2. Repos increase the volumes in the debt market3. Under a repo transaction the seller of the security is the borrower and the buyer is the lender of money.4. Central banks can use repo as an integral part of their open market operations.
REVERSE REPODEFINITION:-• Reverse repo rate is the rate of interest at which the central bank borrows funds from other banks.
• It is also for the short duration• The banks deposit their short term excess funds.• Banks earn high interest.
WHAT HAPPENS IN REVERSE REPO• Reverse repo rate is used by the central bank to absorb liquidity from the economy.• When it feels that there is too much money floating in the market, it increases the reverse repo rate.• The central bank will pay a higher rate of interest to the banks.
• A hike in this rate makes it more lucrative for banks to park funds with the rbi.• An increase in the reverse repo rate means that the rbi will borrow money from the banks at a higher rate of interest.• Deposit of money becomes risk free.
Repo and Reverse repo in India:• Regulation of the repo market is a direct responsibility of RBI.• To increase liquidity, RBI buys government securities from banks under repo.• To decrease liquidity, RBI sells the government securities to banks.
• The Monetary Policy Committee (MPC) is called up by a group of people, they meet up to decide if and how the repo rate should be changed.
CONCLUSION Thus, we can conclude that repo rate signifies the rate at which liquidity is injected in the banking system by rbi. Whereas reverse repo rate signifies the rate at which the central bank absorbs liquidity from the banks.