Q.Explain the meaning of Repo rate and Reverse Repo rate.
You're viewing a preview — the full solution, concept, methods & PYQ mapping are locked.
Start your 14-day free trial to unlock the full solution →Repo rate = rate at which RBI lends to banks; reverse repo rate = rate at which RBI borrows from banks. Both regulate liquidity and credit.
Repo rate (Repurchase rate): It is the rate of interest at which the Reserve Bank of India lends short-term money to commercial banks by purchasing their government securities with an agreement to repurchase. When the RBI raises the repo rate, borrowing becomes costlier for banks, credit contracts and inflation is checked; a lower repo rate makes credit cheaper and expands liquidity.
Reverse repo rate: It is the rate at which the RBI borrows funds from commercial banks, i.e. banks park their surplus money with the RBI. A higher reverse repo rate encourages banks to deposit more with the RBI, reducing the money available for lending in the market.
…
Unlock everything free for 14 days
- Full step-by-step solutions
- Concept-first explanations
- Methods, shortcuts & mistakes
- PYQ mapping + timed mock tests
Full access for 14 days. No credit card required.