Geojit Financial Services Blog

Did You Know?

What is Repo Rate?

Repo rate is the most important policy interest rate in India. The repo rate is decided by the RBI Monetary Policy Committee headed by the RBI Governor.

Repo rate is the rate at which the central bank lends money to commercial banks. Banks typically use the repo rate as a signal to determine their deposit rates, lending rates and base rates.

Repo Rate as monetary policy signalling tool – More than anything else, the repo rate is used by the central bank to signal its monetary policy stance to the banks, businesses, government and people at large. RBI reviews the repo rate from time to time as part of the monetary policy review.

In the event of inflation or rising inflationary expectations, central banks increase repo rate as this acts as a disincentive for banks to borrow from the central bank. This ultimately reduces the money supply in the economy and thus helps in arresting inflation. The central bank takes the contrary position in the event of a fall in inflationary pressures.

Repo and reverse repo rates form part of the Liquidity Adjustment Facility (LAF).

Repo rate is raised when:

Impact of Repo Rate Hike

Repo rate is reduced when:

Impact of Repo Rate Cut: