Repo Rate

A Repo Rate is an Instrument of Monetary Policy. It is defined as "the Rate at which the Reserve Bank of India (RBI) lends Money to Commercial banks". Similar kind of Rate is termed as 'Discount Rate" in United States.

RBI uses Repo Rate or Reverse Repo Rate to increase or decrease the Liquidity in the Market. Repo rate is also known as the 'Key Short Term Lending Rate'. It is a Short Form of 'Repurchase Option'.

Repo rate is a Facility for Commercial Banks to Borrow Money from the Central Bank against Securities, in case they are short of Funds at any Time. If the Central Bank wants to increase the Money Supply in the Market, it decreases the Repo Rate. If it wants to Contract the Money Supply, it increases the Repo Rate. Also, a reduction in Repo Rate helps Banks to get Money at a Cheaper Rate.  

A Repo Rate is always higher than Reverse Repo Rate. I will tell about Reverse Repo Rate in following Posts. 

Regards,

Pragya Banerjee
MBA (Finance); 7+ years of work experience
email:pragyasonal@gmail.com
https://www.facebook.com/pragya.srivastavabanerjee 
https://twitter.com/pragyasonal 
http://www.linkedin.com/pub/pragya-banerjee/15/311/aa9