Reverse Repo Rate (RRR) and How RBI uses This Tool - - Banking Term Explained
Read all about the reverse repo rate and how reserve bank of India uses the reverse repo rate as a tool to control the money floating in the market.
Reverse repo rate is the opposite of the repo rate in the reverse repo rate the reserve bank of India borrows money from the banks and financial institutions. You may think why the reserve bank of India needs to borrow money. This borrowal of money is done to regulate the banking sector and to keep the excess money out of the money market.
By borrowing money from the banks, the excess money from the system is drained out. Banks are always eager to lend money to the reserve bank as that amount of money is sure to get good interest and the money will be safe.
If there is more money in the banking system
In this case the reserve bank will increase the reverse repo rate which will make sure that the banks will lend more money to the reserve bank (since that money would earn more interest) and thus bringing down the excess money from the banking sector.
If there is less money floating
Then the reserve bank will reduce the reverse repo rate. So banks will not be happy to lend money to the reserve bank and thus the money will be kept back in the money market.
Reserve bank of India is using reverse repo rate as a tool to control the flow of money within the system.
Reverse repo rate is the opposite of the repo rate in the reverse repo rate the reserve bank of India borrows money from the banks and financial institutions. You may think why the reserve bank of India needs to borrow money. This borrowal of money is done to regulate the banking sector and to keep the excess money out of the money market.
By borrowing money from the banks, the excess money from the system is drained out. Banks are always eager to lend money to the reserve bank as that amount of money is sure to get good interest and the money will be safe.
If there is more money in the banking system
In this case the reserve bank will increase the reverse repo rate which will make sure that the banks will lend more money to the reserve bank (since that money would earn more interest) and thus bringing down the excess money from the banking sector.
If there is less money floating
Then the reserve bank will reduce the reverse repo rate. So banks will not be happy to lend money to the reserve bank and thus the money will be kept back in the money market.
Reserve bank of India is using reverse repo rate as a tool to control the flow of money within the system.
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Tags: explain Reverse Repo Rate, Reverse Repo Rate, Reverse Repo Rate notes, Reverse Repo Rate now, rrr vs bank rate, what is Reverse Repo Rate
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