Reverse Repo Rate
Reverse repo rate is a monetary policy tool used by the central bank of a country to control the money supply in the economy. It is the rate at which the central bank borrows money from commercial banks within the country. The central bank uses this tool to increase or decrease the money supply in the economy by increasing or decreasing the cost of borrowing. When the reverse repo rate increases, commercial banks are encouraged to lend more money to the central bank, thereby decreasing the money supply in the economy. Conversely, when the reverse repo rate is decreased, commercial banks are encouraged to borrow more money from the central bank, thereby increasing the money supply in the economy.
History of Reverse Repo Rate
Reverse repo rate was first introduced in India in 1992 as part of the Reserve Bank of India’s (RBI) monetary policy. The RBI has been using this tool to control the money supply in the economy since then. The reverse repo rate is used in conjunction with the repo rate, which is the rate at which the central bank lends money to commercial banks. The repo rate and the reverse repo rate are used to control the money supply in the economy by increasing or decreasing the cost of borrowing.
Comparison Table
| Repo Rate | Reverse Repo Rate |
|---|---|
| The rate at which the central bank lends money to commercial banks | The rate at which the central bank borrows money from commercial banks |
| Increases money supply in the economy | Decreases money supply in the economy |
| Decreases the cost of borrowing | Increases the cost of borrowing |
Summary
Reverse repo rate is a monetary policy tool used by the central bank of a country to control the money supply in the economy. It is the rate at which the central bank borrows money from commercial banks within the country. The central bank uses this tool to increase or decrease the money supply in the economy by increasing or decreasing the cost of borrowing. For more information about this term, you can visit the Reserve Bank of India’s website or other websites such as Investopedia and The Balance.
See Also
- Repo Rate
- Monetary Policy
- Money Supply
- Interest Rate
- Liquidity
- Inflation
- Open Market Operations
- Cash Reserve Ratio
- Statutory Liquidity Ratio
- Marginal Standing Facility
