Reverse Repo Rate: When the banks have left the money after the day’s work, then they keep that amount in the Reserve Bank of India. They are paid interest on this deposit by the RBI, which is called reverse repo rate.
The Reserve Bank of India has now cut its reverse repo rate to deal with the Corona crisis. Till now RBI used to take repo rate of 4% from banks, now the central bank has decided to reduce it to 3.75% by reducing 25 basis points. However, it is a very technical and economics term, which is difficult for common people to understand at times.
Let’s know what is the reverse repo rate and what the common people will benefit from the reduction in it…
What is Reverse Repo Rate: As the name itself suggests, the reverse of repo rate is called reverse repo rate. Repo rate is the rate at which RBI lends to banks and reverse repo rate is the interest rate that is given by the central bank on the capital taken from financial banks. It can be understood in such easy language, when the banks have left the money after the day’s work, then keep that amount in the Reserve Bank of India. They are paid interest on this deposit by the RBI, which is called reverse repo rate.
What is the benefit to the public due to the decrease in reverse repo rate: Even though it is a technical term and the issue between RBI and banks, it has an impact on the country’s economy to the common citizens. In fact, this rate reduction increases the availability of cash in the market and banks have more money available for loans. In such a situation, they are motivated to give loans at cheaper rates.
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