repo rate, reverse repo rate In plain terms, we must pay interest on the loans we have received from banks. Similarly, banks need a large amount of money for their everyday operations; in such cases, banks get loans from the Reserve Bank of India (RBI) to cover their cash requirements. The repo rate is the rate at which the Reserve Bank of India charges them interest on this loan.
How does the repo rate effect the average person?
When the Reserve Bank of India makes a loan accessible to banks at a low interest rate, i.e. when the Repo Rate is low, the banks may likewise provide loans to their clients at a cheap interest rate. If the Reserve Bank of India raises the repo rate, it will become more costly for banks to issue loans, and the banks would subsequently make loans more expensive for their clients.
What is the reverse repo rate?
The inverse of repo rate is reverse repo rate. When banks have a big sum left over after a day’s work, they deposit it with the Reserve Bank of India. The Reserve Bank of India provides them with interest on this sum. The rate at which the Reserve Bank of India (RBI) pays interest on this amount is known as the reverse repo rate.
How does the reverse repo rate effect the average person?
When there is an excess of cash in the market, the Reserve Bank of India (RBI) raises the reverse repo rate. So that banks may earn greater interest by depositing their funds with the Reserve Bank. Banks would be able to earn more if the Reserve Bank of India raises the reverse repo rate. Following this, the bank will be able to provide lower-interest loans to its consumers.
What is the Cash Reserve Ratio?
According to banking regulations, each bank is required to retain a portion of its total cash reserve with the Reserve Bank of India, which is known as the Cash Reserve Ratio (CRR). These laws have been put in place so that if a consumer needs to withdraw additional money from a bank, the bank cannot refuse to provide the customer the money.
How does the Cash Reserve Ratio effect the average person?
If the Cash Reserve Ratio rises, banks must maintain a bigger part with the Reserve Bank of India, leaving less money for lending to clients. In such a case, if the Reserve Bank of India cuts the Cash Reserve Ratio (CRR), the market for money transactions expands dramatically.
I hope you now understand what the Repo Rate, Reverse Repo Rate, and Cash Reserve Ratio are and how their changes affect the average person.