BANKING AFFAIRS

Detailed explanation-1: -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-2: -The repo rate is the interest rate at which the Reserve Bank of India (RBI) loans money to commercial banks. Repo is an abbreviation for Repurchase Agreement or Repurchasing Option.

Detailed explanation-3: -Simply put, repo rate is the rate at which the RBI lends to commercial banks by purchasing securities while bank rate is the lending rate at which commercial banks can borrow from the RBI without providing any security.

Detailed explanation-4: -The repo rate is set by the Reserve Bank’s Monetary Policy Committee and is the rate at which it lends money to the country’s commercial banks.

Detailed explanation-5: -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.