Question

How is the repo rate calculated?

Answer 1

RBI loans cash to banks for the short term, usually against government protections. RBI loans cash to banks in the event of a deficiency of assets. It is typically a short-term borrowing and loaning exercise, through which the RBI buys bonds from business banks. The arrangement is to sell them back at a proper date. Comprehensively talking, if the repo rate fixed by the RBI is 5% and the cash acquired by a business bank is Rupees 100 crore, then, at that point, the premium paid to the national bank will be determined at Rupees 5 crore on an annualized premise.

Also see:

• Repo Rate
• Reverse Repo Rate