All you Need to Know about Repo Rate
                     ALL YOU NEED 
TO KNOW ABO
UT REPO RATE
WHAT IS A REPO RATE?
• Repo rate stands for “repurchasing option.” 
• Suppose a bank is short of funds and cannot meet its 
obligations. It goes to the RBI to borrow funds. 
• The bank which borrows from RBI is bound by certain 
rules. 
• The bank has to offer collateral to the RBI in return. 
• The RBI charges certain rate of interest from the 
borrower bank. This rate is called “Repo Rate”. 
• Repo Rate keeps a check on inflation in the country by 
keeping a check on its banks.
IN SHORT, REPO RATE IS
• The rate of interest at which the RBI lends money to 
banks. 
• RBI control inflation by this method. 
• Banks sell their securities to the RBI and buy them 
back at a predetermined rate at a later date.
HOW DOES REPO RATE WORK
?
•  When a bank goes to the RBI for a fund, it has to agree to 
pay a rate of interest. It must also mortgage its treasury 
bills of equal value for the overnight loan.
• The agreement states that the treasury bills will be 
bought back by the bank at a predetermined rate. 
• Every bank is mandated to have a certain amount of 
liquid cash. 
• Loans are given by the RBI against valid securities over 
and above mandated liquid cash or cash reserve ratio 
(CRR).
HOW REPO RATE AFFECTS TH
E ECONOMY?
• The repo rate is a way adopted by RBI to control the 
economy of India. 
• It controls the rate of interest banks charge their customers. 
• The repo rate controls the money supply, the rate of 
inflation, and liquidity. 
• When the inflation rate is high, the RBI tries to restrict the 
money supply in the market by hiking the repo rate.
WHEN THE REPO RATE IS HIGH, THEN
• The banks charge their customers a higher rate of 
interest. 
• Fewer loans are avail by people, industrialists and 
businessmen. 
• There is less investment made.
• Hence, there is less money in the market. 
• The negative impact is in the slowing down of the 
economy. 
• However, it brings down the rate of inflation.
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