BANKING AFFAIRS

Detailed explanation-1: -The rate of interest charged by the central bank on the cash borrowed by commercial banks is called the “Repo Rate”. For example: If the Repo Rate is 10% and the loan amount borrowed by a commercial bank from RBI is Rs 10, 000, then the interest paid to the RBI will be Rs 1, 000.

Detailed explanation-2: -Definition: Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds. Repo rate is used by monetary authorities to control inflation.

Detailed explanation-3: -Repo Rate (RR) is the rate at which the Reserve Bank of India (RBI) lends money to commercial banks or financial institutions in India against government securities. The current Repo Rate 2022 is at 4.40%. Changes in Repo Rate affect the flow of money in the market.

Detailed explanation-4: -Banks sell their securities to RBI to get loans at repo rate, with an agreement to buy back (repurchase) the securities from RBI at a later date. This is the significance of repurchase in repo rate.

Detailed explanation-5: -The reverse repo rate is the rate at which the RBI borrows funds from the country’s commercial banks. It is the rate where the commercial banks in India park excess funds with the Reserve Bank of India, typically for a short period of time.