BANKING AFFAIRS

Detailed explanation-1: -The Reverse Repo Rate is an important Monetary Policy tool used by the Reserve Bank of India (RBI) to control liquidity and inflation in the economy. Under the Reverse Repo Rate, banks deposit excess funds with the RBI and earn interest for it.

Detailed explanation-2: -The rate at which the RBI borrows from the commercial banks is called reverse repo rate. If the RBI increases the reverse repo rate, it means that the RBI is willing to offer lucrative interest rate to commercial banks to park their money with the RBI.

Detailed explanation-3: -What is Meant by Reverse Repo Rate? Reverse Repo Rate is a mechanism to absorb the liquidity in the market, thus restricting the borrowing power of investors. Reverse Repo Rate is when the RBI borrows money from banks when there is excess liquidity in the market.

Detailed explanation-4: -Like the repo rate, a reverse repo rate is a tool used by the reserve bank of India to inject funds and maintain liquidity in the economy. The importance of the repo rate and reverse repo rate extends to loans, investments and their yield.

Detailed explanation-5: -Main Liquidity Management Tool: A 14-day term repo/reverse repo auction operation at a variable rate conducted to coincide with the cash reserve ratio (CRR) maintenance cycle is the main liquidity management tool for managing frictional liquidity requirements.