NEWS – RBI’s policy panel has kept repo rate unchanged at 6.5 per cent

RBI POLICY RATES

1. Repo Rate: The repo rate is the rate at which the RBI lends money to commercial banks. It is a key policy rate that influences borrowing and lending rates in the economy
2. Reverse Repo Rate: The reverse repo rate is the rate at which the RBI borrows money from commercial banks. It acts as a tool for absorbing excess liquidity from the banking system
3. Marginal Standing Facility (MSF) Rate: The MSF rate is the rate at which scheduled banks can borrow funds overnight from the RBI against approved government securities
4. Bank Rate: The bank rate is the rate at which the RBI is ready to buy or rediscount bills of exchange or other commercial papers
5. CRR (Cash Reserve Ratio): The CRR is the percentage of a bank’s total deposits that must be held in reserve with the RBI in the form of cash.

HOW DOES THE REPO RATE WORK?

• When the repo rate is decreased, banks may find an incentive to sell securities back to the government in return for cash. This increases the money supply available to the general economy.
• Conversely, when the repo rate is increased, lenders would end up thinking twice before borrowing from the central bank at the repo window thus, reducing the availability of money supply in the economy