Difference between Repo rates and Reverse Repo rates

Difference between Repo rates and Reverse Repo rates

The Reserve Bank of India (RBI) has increased the repo rate 3 times before September 2022. Due to this, there is currently a 5.40% repo rate. Now it is being speculated by experts that in the coming time, RBI may increase the repo rate to 0.50% and this is so that the ever-increasing inflation rate can be controlled.

At present, the average inflation rate has exceeded the estimated figure, due to which the RBI can take a decision to increase the repo rate in the coming time. Before talking about this in more detail, let us tell you what is repo rate and what is reverse repo rate.

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What is the Repo rate?

Repo rate means the rate at which RBI lends to other banks and after that banks provide loan facilities to their customers at an interest rate.

If this happens, the loan to the banks will be expensive, then the banks will increase the interest rates on any type of home loan, car loan, personal loan, and any other type of loan to the general public.

When it happens the biggest impact is on the common man. If they take a loan from banks or have any kind of EMI, then they will have to pay more money.

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What is the Reverse Repo rate?

Reverse repo rate means when RBI borrows money from other commercial banks and if the reverse rate on the money received by RBI is high then the banks which are giving money to RBI will make more profit.
By doing this, there is also an advantage to those banks that they are completely sure of security because they are giving money to RBI which is completely safe.

At the same time, RBI does this so that if the banks have more money in the market, then they can bring it to a balanced state.

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Why RBI may increase the repo rate in the future?

Market experts believe that in the coming time, the RBI may increase its repo rate on the lines of the Federal Reserve System of the United States of America so that the inflation rate can be brought up to the estimated figure.

America is currently going through the highest inflationary phase in 41 years of its history. To reduce this or to bring it to a balanced state, the Federal Reserve System has increased the interest rate by 75 bps.

Due to this, the Indian stock market facing a downfall this week, and the second, it has also down the global currency. Many of the world’s currencies have fallen against the dollar, ranging from Britain’s Pond to New Zealand Dollar, Euro, the Chinese currency, South African currencies, etc.