What is Repo Rate & Reverse Repo Rate | Repo Rate & Reverse Repo Rate Calculation | Repo Rate & Reverse Repo Rate Benefits
The Reserve Bank of India is one of the central banks in the country and it has the power to affect the inflation present in the economy of the country also the Reserve Bank of India maintains the repo rate and reverse repo rate by giving out borrowings to the other commercial banks. It is important to understand the meaning of the repo rate and reverse repo rate if you are planning to borrow some loans from the Reserve Bank of India or any other commercial bank. Given below we are explaining the answer to the question of What Is Repo Rate & Reverse Repo Rate. We will also share with you all the specifications related to the Calculation, Meaning & Benefits.
Table of Contents
What Is Repo Rate & Reverse Repo Rate?
Repo rate is the rate at which the central bank will be giving loans to the commercial bank against government securities. Reverse repo rate is the interest that the Reserve Bank of India will pay to the bank for the funds that the bank will have to deposit with it. If the repo rate is increasing then it means that the bank is getting funds from the Reserve Bank of India at a relatively higher cost so that means that the bank will also lend money to others at a higher cost. if you are planning to take a loan from a bank then the interest rate will be higher if the repo rate is higher. The full form of the repo is the re-purchasing option. Repo rate will indirectly cause distress among the residents of India.
Effects of Repo Rate & Reverse Repo Rate
- The Reserve Bank of India keeps changing the repo rate and reverse repo rate depending upon various factors related to macroeconomics in the country.
- The change in the repo rate and reverse repo has a direct impact on the economy and also other factors related to the economy of the country.
- The impact will be different for different communities and the organizations present in the country.
- There has been a lower repo rate recently and as a result, the interest rates of the loans are also low but it is resulting in high inflation because there is more money in the system.
- RBI has not changed the repo rate and Reverse Repo Rate recently .
Benefits of Repo Rate & Reverse Repo Rate
Repo rate and reverse repo rate can help the customers to buy various things on loans. These rates directly affected the interest which is imposed on borrowings from the commercial bank and also the Reserve Bank of India and it will indirectly help the customers when the repo rate is low so that the customers can borrow loans from certain commercial banks and then repay them over a period of time by taking the benefit of low-interest rate. If you are planning to borrow a loan for a house then you can take into consideration the loan when the repo rate is lowered by the Reserve Bank of India and then you will be in a much more beneficial position.
Current Repo Rate and Reverse Repo Rate
The Reserve Bank of India has decided to retain the repo rate. It also maintains the reverse repo rate for the financial year 2020 to 2023 taking into consideration the adverse effect of the covid-19 pandemic in the country.
- At present, the repo rate is 4%, and the reverse repo rate is 3.35%.
Recent Repo Rates By RBI
The following table shows the most recent repo rates maintained by the Reserve Bank of India:-
|Date of Update
|4 December 2020
|9 October 2020
|06 August 2020
|22 May 2020
|27 March 2020
|6 February 2020
|5 December 2019
|4 October 2019
|7 Augst 2019
|6 June 2019
|4 April 2019
|7 February 2019
The central bank will increase or decrease the repo rate depending upon the inflation level present in the country. The repo rate has a very adverse effect on inflation.
If the inflation is high then the RBI increases the repo rate and thus the businesses are not able to borrow a specific amount because the cost of borrowing is high. It negatively impacts the growth of the economy and inflation is controlled. If the RBI needs to pump funds into the system it lowers the repo rate so that more businesses can borrow from the Reserve Bank of India to positively impact the economy.
If there is a lack of liquidity in the market then the RBI will decrease the repo rate and then businesses will find it really cheap to borrow money for different investments. It will result in an overall increase in the supply of money in the economy making the liquidity in the market high.