Chart of Repo Rate
Current Repo Rate and Reverse Repo Rate
The current Repo Rate is 4.00% and Reverse Repo Rate is 3.35%. The Repo Rates last witnessed a change in its level on May 22, 2020 when Repo Rate declined by 0.40% from its previous level of 4.40%. and the Reverse Repo Rate declined by 0.40% from its previous level of 3.75%.
As of today, i.e. on January 20, 2022, the Policy Rates which include Repo Rate stood at 4.00%, Reverse Repo Rate at 3.35%, Marginal Standing Facility (MSF) Rate at 4.25% and Bank Rate at 4.25%. The Reserve Ratios which include Cash Reserve Ratio (CRR) stood at 3.00% and the Statutory Liquidity Ratio (SLR) at 18.00%, according to data of Major Monetary Policy Rates and Reserve Requirements released by the Reserve Bank of India.
What is Repo Rate?
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.
Objectives of Repo
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.
Repo Rate in India
The Reserve Bank of India Act, 1934, defines
- "repo" means an instrument for borrowing funds by selling securities of the Central Government or a State Government or of such securities of a local authority as may be specified in this behalf by the Central Government or foreign securities, with an agreement to repurchase the said securities on a mutually agreed future date at an agreed price which includes interest for the funds borrowed;
- "reverse repo" means an instrument for lending funds by purchasing securities of the Central Government or a State Government or of such securities of a local authority as may be specified in this behalf by the Central Government or foreign securities, with an agreement to resell the said securities on a mutually agreed future date at an agreed price which includes interest for the funds lent;
Term Repo under Liquidity Adjustment Facility
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.
Straight Through Processing (STP)
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.
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Reverse Repo Rate