REPO & REVERSE REPO RATES

TOPIC: Economy

Context- Banks interest rates are based on repo & reverse repo rates.

Concept-

Repo Rate: The interest rate that the RBI charges when commercial banks borrow money from it is called the repo rate.
Reverse Repo: The interest rate that the RBI pays commercial banks when they park their excess cash with the central bank is called the reverse repo rate.
Since RBI is also a bank and has to earn more than it pays, the repo rate is higher than the reverse repo rate.
At present, the repo rate is 4%, and the reverse repo rate is 3.35%.
It is a key deciding factor for the interest rates that commercial banks themselves pay (or get) when they borrow (or deposit) money from (or in) the Reserve Bank of India.