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What are the current reverse repo rate and its impact?

· reverse repo rate

Repo rate in reverse:

The reverse repo rate is defined as the interest rate at which the central bank (in India, the RBI) borrows money from commercial banks for a short period.

The Rate of Reverse Repo in India, the fixed interest rate – currently 50 basis points under the repo rate – at which the Central Bank absorbs the liquidity from banks overnight. The Central Bank tends to do this in exchange for qualified government assets as collateral under the liquidity adjustment facility.

The current rate of reverse repo

The current Repo rate is 4%, while the reverse repo rate is 3.35%. The Repo Rates last changed on May 22, 2020, when the Repo Rate fell by 0.40 per cent from its prior level of 4.40 per cent. The Reverse Repo Rate fell from 3.75 per cent to 3.40 per cent.

As of today, October 17, 2021, the policy rates, including the Repo Rate, were 4.00 per cent, 3.35 per cent for the Reverse Repo Rate, 4.25 per cent for the Marginal Standing Facility (MSF) Rate, and 4.25 per cent for the Bank Rate.

According to the Reserve Bank of India's Major Monetary Policy Rates and Reserve Requirements, the Reserve Ratios, including the Cash Reserve Ratio (CRR) and the Statutory Liquidity Ratio (SLR), were at 3.00 per cent and 18.00 per cent, respectively.

The Effect of the Reverse Repo Rate on the Economy

It affects the economy because when the reverse repo rate rises, banks deposit their excess funds with the RBI to earn interest.

As a result, the economy faces decreased money flow. Banks find it more convenient to deposit money in the central bank than to provide it to individuals or businesses, resulting in the increased value of the rupee currency. 

The rate of interest that the financial organization borrows cash from business banks is understood because of the reverse repo rate. The reverse repo rate affects the economy because banks deposit excess funds with the run batted in to earn interest once the reverse repo rate rises.

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