The interest rate at which the Reserve Bank of India lends short-term money to commercial banks against government securities, the main policy rate of monetary policy.
- "Repo" stands for repurchase agreement: banks sell securities to the RBI and agree to buy them back, paying the repo rate as interest.
- A rise in the repo rate makes borrowing costlier, cools demand and helps fight concept inflation; a cut does the opposite.
- The reverse repo rate is the rate at which the RBI borrows from banks (absorbs liquidity); it is lower than the repo rate.
- Set by the six-member Monetary Policy Committee (MPC) as part of concept monetary policy; verify the latest repo rate.
- Sits within the Liquidity Adjustment Facility (LAF); the marginal standing facility (MSF) rate is just above the repo rate.
The repo rate is the headline monetary-policy tool and a high-frequency economy fact; the repo versus reverse-repo direction is a common trap.
Repo (RBI lends to banks) versus reverse repo (RBI borrows from banks); the repo rate is a policy rate, not the CRR or SLR (reserve ratios).
Rate at which the RBI lends short-term to banks; raised to fight inflation; set by the MPC.