REPO, REVERSE REPO ETC

Whenever the banks have any shortage of funds they can borrow it from RBI. The repo rate is the rate at which our banks borrow rupees from RBI. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases borrowing from RBI becomes more expensive. [3] Repo comes from the repurchasing agreement.

A reverse repo is simply the same repurchase agreement from the buyer's viewpoint, not the seller's. Hence, the seller executing the transaction would describe it as a 'repo', while the buyer in the same transaction would describe it a 'reverse repo'. So 'repo' and 'reverse repo' are exactly the same kind of transaction, just described from opposite viewpoints

Difference between Bank Rate and Repo Rate

While repo rate is a short-term measure, i.e. applicable to short-term loans and used for controlling the amount of money in the market, bank rate is a long-term measure and is governed by the long-term monetary policies of the governing bank concerned.

Bank rate, also referred to as the discount rate, is the rate of interest which a central bank charges on the loans and advances that it extends to commercial banks and other financial intermediaries. Changes in the bank rate are often used by central banks to control the money supply.

read in newspapers , RBI modified recently REPO @ 5 % , REVERSE REPO @ 3.5 %  AND BANK RATE @ 6 %. SO there is a clear cut difference between REPO and REVERSE REPO. Similarly it is announced that CRR is  5 %. Let me have a clear picture on all these terms including CRR.

Repo rate is the interest rate at which the reserve bank of 

India lends money to other banks.



Reverse repo rate is return banks earn on excess funds 

parked with the central bank against Government securities.

CRR : The CASHreserve requirement (or required reserve ratio) is a bank regulation that sets the minimum reserves each bank must hold to customer deposits and notes. These reserves are designed to satisfy withdrawal demands, and would normally be in the form of fiat currency stored in a bank vault (vault cash), or with a central bank.



The reserve ratio is sometimes used as a tool in monetary policy, influencing the country's economy, borrowing, and interest rates.[2] Western central banks rarely alter the reserve requirements because it would cause immediate liquidity problems for banks with low excess reserves; they prefer to use open market operations to implement their monetary policy. The People's Bank of China does use changes in reserve requirements as an inflation-fighting tool,



REPO RATE : The repo rate is the relevant interest rate for many arbitrageurs operating in the futures market. It is derived from a repurchase agreement where securities owned by one party are sold to a second party at one price and then repurchased by the first party after a short period of time at a slightly higher price (the second party is essentially providing the first party with a loan). The difference in prices is the interest earned by the second party and the annualized rate of this amount is called the repo rate. The most common type of repo rate is the overnight repo rate where the rate is renegotiated every day. Longer-term agreements called term repos also exist. The repo rate is used for discounting purposes in the binomial method.



SLR : Statutory Liquidity Ratio (SLR) is a term used in the regulation of banking in India. It is the amount which a bank has to maintain in the form of cash, gold or approved securities. The quantum is specified as some percentage of the total demand and time liabilities ( i.e. the liabilities of the bank which are payable on demand anytime, and those liabilities which are accruing in one months time due to maturity) of a bank. This percentage is fixed by the Reserve Bank of India. The maximum and minimum limits for the SLR are 40% and 25% respectively.

**DM

Thanks alot for your reply Mr.Dasharat. Very elobarate information is given. thanq