Meaning
The Reverse REPO Rate is a key tool used by central banks to manage liquidity in the financial system.Definition
It is the interest rate at which the central bank borrows money from commercial banks, typically for a short term, by selling them government securities.How It Works
When commercial banks have surplus funds, they can lend this money to the central bank at the Reverse REPO Rate. This process absorbs excess cash from the banking system, reducing the money supply.Economic Impact
A higher Reverse REPO Rate encourages banks to park funds with the central bank. This helps reduce the overall money supply in the economy, playing a crucial role in controlling inflation.Author
