Question

What is meant by repo-rate?

Answer 1

Repo rate, or repurchase rate, is the rate of interest at which RBI lends to the commercial banks for short periods against government bonds. This is done by the RBI by buying government bonds from commercial banks, with an agreement to sell them back at a fixed rate. Repo rate signifies the rate at which liquidity is injected into the banking system by the RBI. If the RBI wants to make borrowing from it more expensive, it increases the repo rate. Similarly, if the RBI wants to make it cheaper for banks to borrow money from the RBI, it reduces the repo rate.