What is Repo & Reverse Repo Rate? Meaning, Definition and Differences | maijson GKB.
While the repo rate is intended to control liquidity in the economy, the reverse repo rate is used to manage cash flow in the market. When the economy is facing inflation, the central bank raises the reverse repo rate in an effort to persuade commercial banks to deposit money with it and earn interest. Repo Rate: The interest rate at which a country's central bank loans money to commercial banks for a brief period of time—usually overnight—is referred to as the repo rate, sometimes known as the repurchase rate. In this deal, the central bank promises to buy back the government securities it sells to commercial banks later. The primary objectives of the repo rate are to regulate the money supply and inflation. When the central bank raises the repo rate, banks find it more expensive to borrow money, which results in a decrease in the money supply. Conversely, a lower repo rate makes borrowing less expensive, which encourages banks to give out more credit and increase the amount of m...