What is Repo Rate? | Effect of Repo Rate on economy – Explained – Free PDF Download

RBI increases Repo Rate

Repo rate refers to the rate at which the RBI lends to commercial banks.

It is part of RBI’s Liquidity adjustment Facility

• It involves repurchase obligation whereby the commercial banks has to repurchase the securities from the central banks

While lending

Money released would be 9,60,000

G-SECS as collateral of 10 crore

While Returning the money

Securities will be released

10 crores to repurchase the securities

Features of Repo Rate

1. Minimum amount under repo rate is 10 crores and multiples thereof.
2. Duration is usually overnight but on an average upto 7 days.

RBI Repo Rate⇑

Inflation⇓

Increase in Repo rate by RBI

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Money becomes expensive for Commercial Banks

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Commercial bank also increases the rate at which it lends money

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Less loans taken in the market = Less money in circulation

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