1.Repo rate• Introduction:• How does the Repo Rate affect us?• What if the repo rate is lowered:• What if the repo rate is hiked:• Advantages of repos:• Market participants:1.Repo rateIntroduction:How does the Repo Rate affect us?What if the repo rate is lowered:What if the repo rate is hiked:Advantages 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 RATEDEFINITION :-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 consumerspending.• However, an increase in the money supplymakes the currency more vulnerable.
Decrease in money supply. Discourages business growth andconsumer spending. Hike in repo rate is accompaniedby 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 thesecurity is the borrower and the buyer is thelender of money.4. Central banks can use repo as an integral partof their open market operations.
REVERSE REPODEFINITION:-• Reverse repo rate is the rate of interest at whichthe 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 bythe central bank to absorbliquidity from the economy.• When it feels that there istoo much money floating inthe market, it increases thereverse repo rate.• The central bank will pay ahigher rate of interest to thebanks.
• A hike in this rate makes it more lucrative forbanks to park funds with the rbi.• An increase in the reverse repo rate means thatthe rbi will borrow money from the banks at ahigher rate of interest.• Deposit of money becomes risk free.
Repo and Reverse repo in India:• Regulation of the repo market isa direct responsibility of RBI.• To increase liquidity, RBI buysgovernment securities frombanks under repo.• To decrease liquidity, RBI sellsthe government securities tobanks.
• The Monetary Policy Committee (MPC) is calledup by a group of people, they meet up to decideif and how the repo rate should be changed.
CURRENT RATESRepo rate : 8%Reverse reporate : 7%
CONCLUSIONThus, we can conclude that repo rate signifiesthe rate at which liquidity is injected in thebanking system by rbi.Whereas reverse repo rate signifies the rate atwhich the central bank absorbs liquidity fromthe banks.