Understand Repo and Reverse Repo terms
Repo Rate & Reverse Repo Rate Current Repo rate : 4.00% Current Reverse Repo rate : 3.35% The term ‘Repo’ stands for ‘Repurchase agreement’. Repo is form of short-term, interest-bearing and collateral-backed borrowing. Interest rate for such borrowings is termed as repo rate. Repo is basically a short-term money market instrument which is used to raise capital for the shorter-term. In Indian Banking terms, repo rate is the rate at which Reserve Bank of India lends money to all the commercial banks in the country in the event of scarcity of funds. In other words, it is the rate at which Commercial Banks sell their securities and bonds to Reserve Bank of India with an agreement to repurchase the securities and bonds from Reserve Bank of India on a future date at a pre-determined price. The repurchase agreement is signed by both parties involved in the transaction. Reverse repo is an opposite contract to the Repo Rate. Reverse Repo rate is the rate at which Rese...