Repo rate is the rate at which the country’s central bank lends money to the commercial banks generally against government securities. Reverse Repo rate is the rate at which country’s central bank borrows money from the commercial banks.

Repo and reverse repo rates form a part of the liquidity adjustment facility of the Central Bank. Reduction in Repo rate helps the commercial banks to get money at a cheaper rate and increase in Repo rate discourages the commercial banks to get money as the rate increases and becomes expensive.

The increase in the Repo rate will increase the cost of borrowing and lending of the banks which will discourage the public to borrow money and will encourage them to deposit. This ultimately reduces the money supply in the economy. As the rates are high the availability of credit and demand decreases resulting to decrease in inflation.

On the contrary the Central Bank decreased Repo and Reverse Repo rates to increase the money supply in the economy.

The Reserve Bank of India Act, 1934, defines

In October 2013, RBI introduced Term Repo under the Liquidity Adjustment Facility (LAF) for 14 days and 7 days tenors for banks (scheduled commercial banks other than RRBs) in addition to the existing daily LAF (repo and reverse repo) and MSF. Term repo auctions are conducted on CBS (E-KUBER) platform through electronic bidding.

While the 14 day term repo of tenor is conducted every reporting Friday, the 7 day term repo is conducted on every non-reporting Friday. In case the notified amount for the 14-day term repo is not fully subscribed, a 7-day term repo is conducted on the following Friday for the remaining un-subscribed amount. In case of full subscription in the 14-day term repo, the 7 day term repo auction on the following Friday does not take place.

RBI announces the amount to be auctioned under term repo along with its tenor one day prior to the auction. The minimum bid amount for the auction is Rupees one crore and multiples thereof. Term repo auctions are conducted on Fridays between 11.00 -11.30 AM. In case Friday falls on a holiday, the auction takes place on the preceding working day at Mumbai. The eligible collateral for term repo and the applicable haircuts remains the same as daily LAF repo and MSF.

Reserve Bank of India introduced Straight Through Processing (STP) in fixed rate LAF Repo, fixed rate LAF Reverse Repo with effect from August 3, 2015. This enables the eligible participants to receive the credit or debit immediately on placement of the bids or offers, subject to the availability of the collateral or funds, within the prescribed time window.

Eligible participants can place multiple bids/offers in the respective liquidity facilities. Settlement of the transaction are automatic and immediate after the placement of the bid/offer. The transactions undertaken by a participant will be final and request for cancellation of bids or offers are not entertained.