RBI’s Reverse Repo Rate Policy
RBI's Reverse Repo Rate Latest Update
Latest Release
Feb 7, 2025
Actual
3.35%
Previous
3.35%
Current Reverse Repo Rate: The current Reverse Repo Rate is 3.35%.
On Feb 7th, 2025, The RBI has made the reverse repo fixed rate at 3.35%.
Historical RBI's Reverse Repo Rate Chart
Reverse Repo Rate Chart - Historical Trends
Analyze Reverse Repo Rate Changes Over Time
RBI Reverse Repo Rate overview
The reverse repo rate is how much interest the central bank RBI pays to commercial banks when it borrows money from them.
RBI uses the Reverse Repo Rate as a tool to absorb excess liquidity from the market, limiting the investors’ borrowing power. Banks keep surplus funds in RBI and earn interest.
The reverse repo rate is an essential instrument in a central bank’s monetary policy framework. The Reserve Bank of India (RBI) uses the reverse repo rate to manage inflation and economic stability.
Recent trends indicate a shift towards the Standing Deposit Facility (SDF) as the RBI’s preferred tool for managing liquidity.
Impact of RBI Reverse Repo Rate
How does the Reverse Repo Rate work
Increase in reverse repo rate: When the reverse repo rate goes up, banks prefer to deposit money with the central bank so that they earn more interest. However, it reduces the amount of money available in the economy.
Decrease in reverse repo rate: When the reverse repo rate goes down, banks earn less by depositing funds, so they are more likely to lend to people and businesses. This can boost the economy and increase the liquidity in the economy.
The RBI uses it as a tool to control inflation by influencing the money supply in the country.
Standing Deposit Facility
The Standing Deposit Facility (SDF) has largely replaced the reverse repo rate as the RBI’s preferred tool for absorbing excess liquidity.
Reverse Repo Rate requires the RBI to provide bonds as collateral, while SDF does not.
SDF is now the primary tool for liquidity absorption, while the reverse repo rate has limited usage.
FAQs
What is the reverse repo rate and how does it work?
The reverse repo rate is basically the interest rate the Reserve Bank of India (RBI) offers when it temporarily borrows money from commercial banks.
How are the repo and reverse repo rates related?
The Repo Rate is essentially what commercial banks pay to borrow money from the RBI, while the reverse repo rate is what they earn when they deposit extra funds with the RBI. Usually, the repo rate is higher than the reverse repo rate.
Why does the RBI use the reverse repo rate?
The RBI uses the reverse repo rate as a way to keep inflation in check and manage how much money is circulating in the economy. When this rate is set high, banks tend to deposit their money with the RBI instead of lending it out, which lowers the amount of money available in the market.
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