What is the meaning of Repo Rate ........

Economic Affairs Money Supply and Monetary Policy

What is the meaning of Repo Rate?

When a bank is in need of cash it can it can discount bills of exchange and avail loan facilities from Reserve Bank of India.

When a bank has excess cash, they buy securities from RBI against cash on the condition that they resell the securities to RBI on a pre fixed day and price

It is rate at which RBI allows temporary loan facilities to commercial banks against government securities on the condition that the bank will repurchase the securities within a short period.

It is a rate which is offered by banks to their most valued customers or prime customers.

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Explanation:

Repo rate can be defined as an amount of interest that is charged by the Reserve Bank of India while lending funds to the commercial banks. The word ‘Repo’ technically stands for ‘Repurchasing Option’ or ‘Repurchase Agreement’. Both the parties are required to sign an agreement of repurchasing which will state the repurchasing of the securities on a specific date at a predetermined price. The repo rate in India is controlled by the Reserve Bank of India.

Any changes in the repo rates can directly impact the economy. A decrease in the repo rates helps in improving the growth and economic development of the country. A decline in the repo rate can lead to the banks bringing down their lending rate which is beneficial for retail loan borrowers.