Repo rate is the rate at which banks borrow short-term funds from the central bank (RBI). A lower repo rate increases money supply and encourages growth, while a higher rate decreases money supply. Reverse repo rate is the rate at which the central bank borrows short-term excess funds from banks, absorbing liquidity from the system. In India, the RBI regulates the repo market and uses repos and reverse repos to manage liquidity. Currently, the repo rate is 8% and reverse repo rate is 7%.
3. 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:
4. 2.Reverse repo rate
Introduction:
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 :
5. REPO RATE
DEFINITION :-
Repo rate or repurchase rate is the rate at which
banks borrow money from the central bank (RBI).
6. It is for the short period.
The banks sell their securities (financial assets)
with an agreement to repurchase it at future
date at predetermined price.
It is also called as a repurchase agreement.
7. 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.
8. • Increase in money supply.
• Encourages business growth and consumer
spending.
• However, an increase in the money supply
makes the currency more vulnerable.
9. Decrease in money supply.
Discourages business growth and
consumer spending.
Hike in repo rate is accompanied
by increase in bad debts.
Loans get costlier.
10. 1. Increase in turnover in the money market.
2. Repos increase the volumes in the debt market
3. 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.
13. • It is also for the short duration
• The banks deposit their short term excess funds.
• Banks earn high interest.
14. 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.
15. • 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.
16. 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.
17. • 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.
19. 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.