The Reserve Bank of India (RBI), announced today, that repo is being increased by 25 basis points (bps) and the reverse repo by 50 basis points (bps). The repo rate is now 6% and reverse repo is 5%.
What is a Repo Rate?
The rate at which banks borrow funds from RBI is called Repo Rate. Banks usually borrow funds When there is a paucity of funds banks turn to RBI to cover the short-fall, by borrowing from RBI.
What is a Reverse Repo Rate?
The rate at which RBI borrows funds from banks is called Reverse Repo Rate.
Any increase in Reverse Repo Rate is usually welcomed by banks, because the money they lend to RBI is safe and earns a decent rate of interest as well.
