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Current Rate

The repo rate is the interest rate at which the Reserve Bank of India lends money to banks for short periods, by purchasing government bonds from banks with an agreement to sell them back at a fixed rate. Raising the repo rate makes it more expensive for banks to borrow money, while lowering it makes borrowing cheaper. Similarly, the reverse repo rate is the interest rate at which the RBI borrows money from banks for short periods. The statutory liquidity ratio and cash reserve ratio are requirements for the amount of funds banks must maintain with the RBI.

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60 views2 pages

Current Rate

The repo rate is the interest rate at which the Reserve Bank of India lends money to banks for short periods, by purchasing government bonds from banks with an agreement to sell them back at a fixed rate. Raising the repo rate makes it more expensive for banks to borrow money, while lowering it makes borrowing cheaper. Similarly, the reverse repo rate is the interest rate at which the RBI borrows money from banks for short periods. The statutory liquidity ratio and cash reserve ratio are requirements for the amount of funds banks must maintain with the RBI.

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sumitbaba
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© Attribution Non-Commercial (BY-NC)
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Current Repo Rate

Repo rate, or repurchase rate, is the rate at which RBI lends to banks for short periods.
This is done by RBI buying government bonds from banks with an agreement to sell them
back at a fixed rate. If the RBI wants to make it more expensive for banks to borrow
money, it increases the repo rate. Similarly, if it wants to make it cheaper for banks to
borrow money, it reduces the repo rate.
Please note that Bank Rate and Repo Rate seem to be similar terms because in both of
them RBI lends to the banks. However,
Repo Rate is a short-term measure and it refers 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 RBI. In broader term, bank 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. RBI uses this tool to control the
money supply.
How Repo Rate Works?
When RBI reduces the Repo Rate, the banks can borrow more at a lower cost. This
contributes to lowering of the rates.

Current Reverse Repo Rate

Reverse repo rate is the rate of interest at which the RBI borrows funds from other banks
in the short term . This is done by RBI selling government bonds / securities to banks
with the commitment to buy them back at a future date. The banks use the reverse
repo facility to deposit their short-term excess funds with the RBI and earn interest on it.
RBI can reduce liquidity in the banking system by increasing the rate at which it borrows
from banks. Hiking the repo and reverse repo rate ends up reducing the liquidity and
pushes up interest rates.
How Reverse Repo Rate Works? 
When the RBI increases the Reverse Repo, it means that now the RBI will provide extra
interest on the money which it borrows from the banks. An increase in reverse repo rate
means that banks earn higher returns by lending to RBI. This indicates a hike in the
deposit rates.

Current Trends: Statutory Liquidity Ratio

As per Section 24 (2A) of Banking Regulation Act 1949, every banking company in India
has to maintain equivalent to an amount which shall not at the close of the business on
any day be less than certain portion of the total of its net demand and time liabilities
(NDTL).The components of SLR are Cash in hand, Gold owned by the bank, Balance with
RBI, Net balance in current account & Investment in Government securities. SLR has to be
maintained at the close of business on every day.
Current SLR is 24% w.e.f 16.12.2010

Current Cash Reserve Ratio

The Cash Reserve Ratio is the amount of funds that the banks are bound to keep with
Reserve bank of India, with reference to the demand and time liabilities (NDTL) to ensure
the liquidity and solvency of the Banks. Please note that earlier RBI was empowered to fix
RBI between 3-20% by notification. However, from 2006 onwards the RBI is empowered to
fix the CRR on its discretion without any ceiling. The CRR is maintained fortnightly
average basis.

 Current CRR is 6%

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