Repo Rates

Concept: Repo Rates
Topic: Repo
Category: Economy
Related News: Hindu, Jan 15
CNA mentions:  (Jan 15, June 8)

Repo Rates

Repo rate, also called the repurchase rate is the rate at which commercial banks borrow money from the Reserve Bank of India (RBI), usually against government securities. A decrease in this rate means commercial banks get money at a cheaper rate. And, when the repo rate is increased, banks are less prone to borrow money since it becomes expensive.

An increase in the repo rate will shoot up the cost of lending of the banks and this will dissuade the public from borrowing money. They will be encouraged to deposit. Keeping the repo rate high will decrease credit availability, thus decreasing demand resulting in a decrease in inflation. An increase in repo rate by the RBI signifies a tightening of the monetary policy.