Reverse Repo Rate
The opposite of Repo Rate, used to manage excess liquidity in the system.
Introduction
Reverse Repo Rate works opposite to repo rate and helps RBI manage excess liquidity.
Meaning of Reverse Repo Rate
It is the rate at which banks lend money to RBI for short durations.
Objective
RBI uses reverse repo to absorb surplus liquidity from the banking system.
High Reverse Repo Scenario
Banks prefer parking funds with RBI instead of lending, reducing money supply in the economy.
Low Reverse Repo Scenario
Banks find lending more attractive, increasing credit flow to the economy.
Relationship with Repo Rate
Reverse repo is usually lower than repo rate, creating an interest rate corridor.
Conclusion
Reverse repo rate is an effective liquidity absorption tool used by RBI.