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Repo rate and reverse repo rate??

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(Querist)
07 September 2011 Dear Experts,

Please clarify what is repo rate and reverse repo rate? And how it will impact on our loan interest rate. Why govt increase/decrease the repo rate and reverse repo rate..

Thanks in advance...

Sanjay Verma
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Hari Beldona

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Hari Beldona (Expert)
07 September 2011 repo rate is the rate at which RBI lends money to other commercial banks.
Reverse repo rate as the name suggests is the Rate at which RBI borrows from other commercial banks.

depending on the level of money supply it decides to maintain in the country's monetary system. To temporarily expand the money supply, the central bank decreases repo rates to contract the money supply it increases the repo rates
Alternatively, the central bank decides on a desired level of money supply and lets the market determine the appropriate repo rate.

our banks adjust their lending or investment rates for common man.
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