Let us learn what: Repo and Reverse Repo Rates are.

Commercial Banks like HDFC Bank, ICICI Bank, and SBI may require funds. The easiest way to raise them would be to borrow from the Reserve Bank of India (RBI).

The rate of interest at which RBI loans money to commercial banks is called Repo Rate. The current Repo rate is 6.5%.

Similarly, the rate of interest RBI pays for commercial bank deposits is called Reverse Repo Rate. The current Reverse Repo is 3.35%

“Banks” borrowing from “RBI” and “We” borrowing from a “Bank” are conceptually similar.

When we approach a bank for a loan, they provide the “loan rate” and when we deposit, the banks will show us the “Fixed Deposit rate” chart. Always the loan rate will be higher than the deposit rate.

The repo and reverse repo rate adjustments could control inflation — we will discuss that concept some other day…