<\/span><\/h2>\n![\"WHAT](\"https:\/\/www.caindelhiindia.com\/blog\/wp-content\/uploads\/2021\/08\/WHAT-IS-THE-DIFFERENCE-BETWEEN-REPO-RATE-AND-REVERSE-REPO-RATE-1.jpg\")
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Some of the major differences between the Repo Rate and Reverse Repo Rate are as follows – <\/strong><\/p>\n\n\n\nPARAMETERS<\/strong><\/td>\nREPO RATE<\/strong><\/td>\nREVERSE REPO RATE<\/strong><\/td>\n<\/tr>\n\nMEANING<\/strong><\/td>\n| IT IS THE RATE OF INTEREST, AT WHICH RBI SANCTION LOAN TO COMMERCIAL BANKS, USING GOVERNMENT SECURITIES AS COLLATERAL.<\/td>\n | REVERSE REPO RATE IS THE INTEREST OFFERED BY RBI TO BANKS WHO DEPOSIT FUNDS WITH THEM<\/td>\n<\/tr>\n | \nRATE OF INTEREST<\/strong><\/td>\n| USUALLY HIGHER THAN THAT OF REVERSE REPO RATE<\/td>\n | LOWER THAN THAT OF REPO RATE<\/td>\n<\/tr>\n | \nOPERATIONAL MECHANISM <\/strong><\/td>\n| RBI ISSUES FUNDS TO COMMERCIAL BANKS, USING GOVERNMENT SECURITIES AS COLLATERAL.<\/td>\n | COMMERCIAL BANKS DEPOSIT THEIR EXCESS FUNDS WITH RBI AND RECEIVE INTEREST ON THEIR DEPOSITS.<\/td>\n<\/tr>\n | \nCONTROLS<\/strong><\/td>\n| INFLATION<\/td>\n | MONEY SUPPLY IN THE ECONOMY.<\/td>\n<\/tr>\n | \nPURPOSE<\/strong><\/td>\n| FULFILL THE SHORTFALL OF FUNDS.<\/td>\n | ENSURE LIQUIDITY IN THE ECONOMY.<\/td>\n<\/tr>\n | \nBORROWER\u2019S OBJECTIVE<\/strong><\/td>\n| MANAGEMENT OF SHORT-TERM SHORTFALL OF FUNDS.<\/td>\n | TO REDUCE OVERALL SUPPLY OF MONEY IN THE ECONOMY.<\/td>\n<\/tr>\n | \nIMPACT OF HIGHER RATE<\/strong><\/td>\n| INCREASE IN COST OF BORROWING, HENCE MAKING LOANS EXPENSIVE.<\/td>\n | DECREASE IN MONEY SUPPLY IN THE ECONOMY, AS COMMERCIAL BANKS TENDS TO PARK MORE SURPLUS FUNDS WITH RBI.<\/td>\n<\/tr>\n | \nIMPACT OF LOWER RATE<\/strong><\/td>\n| DECREASE IN COST OF FUNDS, HENCE MAKING LOANS CHEAPER.<\/td>\n | MONEY SUPPLY INCREASES IN THE ECONOMY AS BANKS LEND MORE AND REDUCE THEIR DEPOSITS WITH CENTRAL BANK<\/td>\n<\/tr>\n | \nCHARGED ON<\/strong><\/td>\n| REPO RATE IS CHARGED ON REPURCHASE AGREEMENT<\/td>\n | REVERSE REPO RATE IS CHARGED ON REVERSE REPURCHASE AGREEMENT<\/td>\n<\/tr>\n | \nCURRENT RATE<\/strong><\/td>\n| 4%<\/td>\n | 3.35%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n <\/p>\n <\/span>REPO RATE<\/span><\/span><\/h3>\nAs mentioned above, repo rate\u00a0is an\u00a0interest rate\u00a0at which the RBI grants funds to commercial banks for short-term against government securities.\u00a0in such a\u00a0case, a repurchasing agreement is signed by both parties, stating that the securities\u00a0are\u00a0repurchased at a pre-determined price at a given date. It helps the\u00a0RBI\u00a0to manage\u00a0the money\u00a0supply, liquidity, and inflation\u00a0within the\u00a0economy. As of August 2021, the repo rate\u00a0is about\u00a0at 4%.<\/p>\n FEATURES<\/p>\n \n- It is the interest are at which, RBI\u00a0lends money to commercial banks, in order to cover up their short-term deficiency of funds.<\/li>\n
- Banks also borrow money\u00a0in the\u00a0case of an emergency or to\u00a0comply with the norms of\u00a0CRR or SLR requirements.<\/li>\n
- It\u00a0could be a\u00a0tool\u00a0to regulate\u00a0inflation and liquidity and, regulate\u00a0the money\u00a0supply\u00a0within the\u00a0economy.<\/li>\n
- RBI makes increases or decreases the Repo Rate considering the macroeconomic factors.<\/li>\n<\/ul>\n
<\/span>REVERSE REPO RATE<\/span><\/span><\/h3>\nReverse repo rate\u00a0is the\u00a0interest offered by the\u00a0RBI\u00a0to commercial banks who deposit funds with them.\u00a0as an example, when banks generate excess funds,\u00a0they are advised to\u00a0deposit it with RBI and earn interest on\u00a0the same.\u00a0thus, it is\u00a0another financial tool\u00a0employed by\u00a0the RBI\u00a0to manage\u00a0funds\u00a0within the\u00a0economy. Reverse repo rate stands @ 3.35% as of August 2021.<\/p>\n <\/span>FEATURES<\/strong><\/span><\/span><\/h3>\n\n- Banks deposit their surplus money with the\u00a0RBI\u00a0and earn interest for it.<\/li>\n
- Considering the macroeconomic forces, RBI increases or decreases the\u00a0rate.<\/li>\n<\/ul>\n
<\/span>FAQs on Repo Rate and Reverse Repo Rate<\/strong><\/span><\/span><\/h2>\n![\"WHAT](\"https:\/\/www.caindelhiindia.com\/blog\/wp-content\/uploads\/2021\/08\/WHAT-IS-THE-DIFFERENCE-BETWEEN-REPO-RATE-AND-REVERSE-REPO-RATE3.jpg\") <\/p>\n
\n- Is reverse repo rate\u00a0more than\u00a0the repo rate?<\/strong><\/span><\/li>\n<\/ol>\n
No, reverse repo rate\u00a0is often\u00a0under\u00a0repo rate. Currently, the reverse repo rate is 3.35%, while repo rate is 4%.<\/p>\n \n- What is the reason, for reverse repo rate\u00a0being less than\u00a0the repo rate?<\/strong><\/span><\/li>\n<\/ol>\n
Reverse repo rate is under the repo rate because RBI cannot pay higher interest on deposits than charging interest on loans. This is often to facilitate income from RBI to commercial banks, which successively will increase the purchasing power of the market.<\/p>\n \n- What happens when reverse repo rate decreases?<\/strong><\/span><\/li>\n<\/ol>\n
In case the reverse repo rate decreases, commercial banks tend to reduce their deposits with RBI, and therefore use the surplus funds in lending to their customer, in order to earn higher interest. This\u00a0ends up in\u00a0increasing purchase power and cash inflow\u00a0within the\u00a0economy.<\/p>\n \n- What is the reverse repo rate at present?<\/strong><\/span><\/li>\n<\/ol>\n
Reverse repo rate stands at 3.35% as of August 2021.<\/p>\n","protected":false},"excerpt":{"rendered":" WHAT IS THE DIFFERENCE BETWEEN REPO RATE AND REVERSE REPO RATE BRIEF INTRODUCTION The two Liquidity Adjustment Facility with the\u00a0Reserve Bank of India\u00a0are \u2013 Repo Rate and Reverse Repo Rate. Repo Rate\u00a0is basically the\u00a0rate of interest which the\u00a0RBI, i.e.\u00a0Reserve Bank\u00a0of India, charges for granting loans to commercial\u00a0banks. On the other hand, Reverse Repo Rate\u00a0is basically …<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[123],"tags":[859],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.caindelhiindia.com\/blog\/wp-json\/wp\/v2\/posts\/3847"}],"collection":[{"href":"https:\/\/www.caindelhiindia.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.caindelhiindia.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.caindelhiindia.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.caindelhiindia.com\/blog\/wp-json\/wp\/v2\/comments?post=3847"}],"version-history":[{"count":4,"href":"https:\/\/www.caindelhiindia.com\/blog\/wp-json\/wp\/v2\/posts\/3847\/revisions"}],"predecessor-version":[{"id":3855,"href":"https:\/\/www.caindelhiindia.com\/blog\/wp-json\/wp\/v2\/posts\/3847\/revisions\/3855"}],"wp:attachment":[{"href":"https:\/\/www.caindelhiindia.com\/blog\/wp-json\/wp\/v2\/media?parent=3847"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.caindelhiindia.com\/blog\/wp-json\/wp\/v2\/categories?post=3847"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.caindelhiindia.com\/blog\/wp-json\/wp\/v2\/tags?post=3847"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}} | | | | | | | | | | | | | |
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