BANKING AFFAIRS

Detailed explanation-1: -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-2: -The Reserve Bank of India (RBI), under its Liquidity Adjustment Facility, infuses liquidity in the banking system via repos and sucks it out using reverse repos. The RBI, after assessing liquidity conditions, uses a 14-day variable rate repo and/or reverse repo operation. The quantum is decided by the RBI.

Detailed explanation-3: -Reverse Repo Rate is a tool used by the Reserve Bank of India primarily to absorb liquidity. 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.

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: -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.