DESICION OF RBI

Repo and Reverse Repo are tools available in the hands of 
RBI to manage the liquidity in the system. It either 
injects liquidity into the market if the conditions are 
tight or sucks out liquidity if the liquidity is excess in 
the system through the Repo and Reverse Repo mechanism, 
besides a host of other measures.

Now in REPO RBI injects liquidity into the system i.e. it 
purchases the securities from the banks and lends money to 
them to ease their liquidity crunch. The rate charged by it 
for lending money is the REPO rate.

Reverse REPO is the opposite of REPO: When liquidity is 
excess in the system. RBI sucks it out by Reverse REPO by 
lending securities and taking out money from banks. The 
rate charged for it is the Reverse Repo rate. 
These rates, form the bottom and the top of the Call money 
lending/borrowing of the banks. The call money rates 
generally fall in between this corridor.