What is Reverse Repo rate?

It is the rate of interest at which the central bank (Reserve Bank) accepts deposits from commercial banks.

Additional Information:-

It is the rate of interest at which the Central Bank (Reserve Bank of India) accepts deposits from Commercial Banks.

A reverse repo rate allows the commercial banks to generate interest income.

How Reverse Repo Rate is used to control the money supply (Credit creation).

When the reverse repo rate is raised, it encourages the commercial banks to deposit their funds with the central bank. It decreases the cash reserves of the commercial bank and lending capability decreases. It decreases the credit creation and the money supply also decreases.

When the reverse repo rate is reduced, it discourages commercial banks from depositing their funds with the central bank. It increases the cash reserves of the commercial bank and lending capability increases. It increases the credit creation and the money supply also increases.

Reverse Repo Rate is also called Reverse Repurchase Rate:

The rate at which the RBI (Central Bank) accepts deposits from commercial banks (through government securities) is called the ‘Reverse Repo Rate’.

It is also called Reverse Repurchase Rate. In this case, a reverse repurchase agreement is signed by both parties stating that the securities will be repurchased on a given date at a predetermined price.