Full Form of REPO Rate
Repurchase Agreement Rate
REPO Rate Full Form is Repurchase Agreement Rate. REPO Rate refers to the rate of interest at which the central bank of a country lends money to the commercial banks of that country. This rate is fixed by the central banks of various countries and it varies from one country to the other. In case of financial crisis or other demands, a commercial bank has to borrow money from the central bank to meet the financial demands of the consumers. The central bank lends them money at a specified rate.
This rate is determined on the basis of various facts like market conditions, financial situations, health of the stock market etc. The cheaper the REPO rate is, the less money a bank has to pay to the central bank. This system of fixing a rate becomes highly effective in case of inflation in a country. Central banks usually increase the REPO rate in such situations.
This discourages the banks to borrow money and thus it brings stability to the money flow and inflation in the country. The other side of it is the Reverse Repo Rate. It refers to the rate at which the central bank of a country borrows money from the commercial banks. This rate is also determined by the respective central banks which are the monetary authorities of a country.