Repo and Reserve Repo

The repo rate is the rate at which the Central Bank lends short-term money to the banks. When the repo rate increases, borrowing from the Central Bank becomes more expensive. Therefore, when the Central Bank wants to make it more expensive for banks to borrow money, it increases the repo rate and vice versa. On the other hand, the reverse repo rate is the rate at which banks park their short-term excess liquidity with the Central Bank. An increase in the reverse repo rate means that the Central Bank will borrow money from banks at a higher rate of interest.

Leave a Reply