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what is Reverse Repo Rate?

Reverse Repo Rate

About Reverse Repo Rate

what is Reverse Repo Rate?

Reverse Repo Rate is defined as the rate at which the Reserve Bank of India (RBI) borrows money from banks for the short term. It is an important monetary policy tool employed by the RBI to maintain liquidity and check inflation in the economy. The Reverse Repo Rate helps the RBI get money from the banks when it needs. In return, the RBI offers attractive interest rates to them. The banks also voluntarily park excess funds with the central bank as it provides them with an opportunity to earn higher interest on surplus money. The Reverse Repo Rate is decided by the Monetary Policy Committee (MPC), headed by the RBI Governor. The decision is taken in the bi-monthly meeting of the Committee.

Difference between repo rate and reverse repo rate?

Under the Reverse Repo Rate, banks deposit excess funds with the RBI and earn interest for it.
The opposite of Reverse Repo Rate is the Repo Rate, at which the banks borrow short-term money from the RBI.

Impact of Reserve Repo rate hike and cut:

The central bank increases or decreases the reverse repo rate depending on the macroeconomic factors. An increase in the Reverse Repo Rate provides an incentive to the banks to park their surplus funds with the central bank on a short-term basis, thereby reducing liquidity in the banking system and overall economy. In other words, the RBI gets surplus money from banks against the collateral of government securities on an overnight basis.
Whenever RBI decides to reduce the reverse repo rate, banks earn less on their excess money deposited with the Reserve Bank of India. This leads the banks to invest more money in more lucrative avenues such as money markets, which increases the overall liquidity available in the economy. While this can also lead to lower interest rate on loans for the bank’s customers, the decision will depend on multiple factors including the bank’s internal liquidity situation and the availability of other potentially less risky and equally lucrative investment opportunities.

Latest Updates on Reverse Repo Rate

Monetary policy review: Economists see repo rate climbing to around 6%

At its current level, the repo rate is at its highest since August 2019

Updated On : 06 Aug 2022 | 2:00 AM IST

The art and science of managing inflation

The conduct of monetary policy is not based on simplistic binaries, particularly during times of extraordinary uncertainty

Updated On : 28 Jun 2022 | 12:30 AM IST

RBI raises repo rate by 50 bps to tame prices; pegs FY23 GDP growth at 7.2%

The repo rate before the pandemic came was 5.15%

Updated On : 09 Jun 2022 | 1:25 AM IST

Most economists see 50-bp repo rate hike: Business Standard policy poll

FY23 inflation projection may go above 6%; liquidity steps anticipated

Updated On : 06 Jun 2022 | 6:10 AM IST

Excess liquidity in India's banking system back to pre-Covid levels

A section of the market sees further liquidity tightening measures from the RBI in the June review of the monetary policy

Updated On : 01 Jun 2022 | 6:10 AM IST

RBI raises repo rate by 40 bps in surprise move; CRR increased by 50 bps

The 10-year government bond shot up 26 bps, with the street expecting another rate hike in the June policy

Updated On : 05 May 2022 | 2:39 AM IST

Monetary policy: RBI shifts gaze to inflation from growth after 2 years

Sets stage for rate hikes after June policy amid high oil prices, yields

Updated On : 08 Apr 2022 | 11:16 PM IST

RBI policy highlights: Prioritising inflation over growth, says Das

RBI Monetary policy updates: As expected by market participants, RBI retained status quo on key interest rates. Governor Shaktikanta Das said. "Approach needs to cautious, but proactive". Stay tu

Updated On : 08 Apr 2022 | 2:01 PM IST

'RBI to remain accommodative, leave all rates unchanged in April policy'

The comfort provided by the expected improvement in inflation was the anchor for the super-dovish February policy

Updated On : 04 Apr 2022 | 8:28 PM IST

RBI believes differing policy strategy, policy stance can co-exist: Report

Bond yields have shed seven basis points to 6.73 per cent on Thursday after touching 6.88 per cent on the Budget day

Updated On : 11 Feb 2022 | 3:07 PM IST

No hike in reverse repo as RBI sticking with accommodative stance: Das

The rates represent a particular stance with regard to the monetary policy and the committee decided to continue with the accommodative stance, said RBI Governor Shaktikanta Das

Updated On : 10 Feb 2022 | 4:46 PM IST

RBI monetary policy: Rates kept unchanged for continued support to economy

RBI monetary policy 2022: 'India is charting a different course of recovery than the rest of the world, to be the fastest-growing economy,' says RBI governor

Updated On : 10 Feb 2022 | 2:11 PM IST

Parliament LIVE: UPA term was India's 'andhkaal', says FM Sitharaman

Rampant corruption, double digit inflation, policy paralysis were part of the dark age under Congress rule, says Sitharaman

Updated On : 10 Feb 2022 | 8:55 PM IST

Here's what MPC may take into account before announcing its decision today

The gap, which is 25 basis points (bps) during normal times, has widened to 65 bps since the onset of the Covid-19 pandemic

Updated On : 10 Feb 2022 | 6:04 AM IST

Bond yields cool off before Reserve Bank of India's monetary policy

RBI watchers call for a CRR hike to support OMOs

Updated On : 10 Feb 2022 | 1:25 AM IST

20 bps reverse repo rate hike to help get buyers for G-secs: SBI report

During H1, banks were investing in G-secs and are not under stress due to rising yield

Updated On : 08 Feb 2022 | 1:11 AM IST

It's time to formalise the normalisation process: Part 2

MPC's stance should remain accommodative till growth is secured, and future actions should be data-driven. But for now, reverse repo rate should be hiked by at least 20 bps

Updated On : 08 Feb 2022 | 12:32 AM IST

It's time to formalise the normalisation process: Part 1

Inflation may not be as transitory as has been estimated since rising demand will add to the supply bottlenecks

Updated On : 08 Feb 2022 | 12:35 AM IST

Union Budget 2022: Govt borrowing plan may prompt reverse repo hike

15-40 bps raise likely in MPC meeting next week, say market participants

Updated On : 03 Feb 2022 | 6:04 AM IST

Reserve Bank of India conducts variable repo rate auction of Rs 75,000 cr

The central bank offered Rs 75,000 crore of liquidity to the banking system against which banks bid for up to Rs 1.38 trillion

Updated On : 25 Jan 2022 | 2:06 AM IST