A Guide to Know the Definition of Repo Rate

Repo rate is a rate of interest that lets the central bank or the Reserve Bank of India (RBI) to lend short term money to other banks. It is also known as the repurchase rate. This policy is specifically made to control economic growth, credit availability, and inflation of India. Different other policy rates are directly or indirectly linked with the RBI’s Repo Rate.

There is the opposite of Repo Rate, known as Reverse Repo Rate, which works with the banks to receive money with the RBI as a short term policy. Repo rate is a reasonable rate for the public. From the interest rate to return is highly influenced by this rate, which is set by the RBI.

When the RBI changes the Repo rate, interest rates on car loans, home loans, or other loans go up and down. Banks also tend to adjust the fixed deposits, savings accounts, etc., based on the benchmark. A SIP Calculator can be the best solution to find out the joint return ideas within a short time.

When the repo is transacted for only a day, it is known as an overnight repo. In this agreement, banks sell their securities to the main RBI for an amount and get the return in the next day to the central bank.

And when the repo is transacted for more than one day, it is known as term repo. Usually, the time being is about 7 to 14 or even 28 days. The RBI governor announces the next repo time when the transaction is made.

Sometimes, the RBI keeps the rate high, and the banks borrow less money because they have to fund colossal amount. Sometimes, the RBI also keeps the repo low, and the banks can borrow more than usual cash from the central bank at a low cost.

When the loans are less available because of the high costs, it restricts money supply for the entire economic activity. It happens when the RBI sets a high target. It tends to make the economy growing.