What is Reverse Repo Rate?
RRR full form is Reverse Repo Rate that has a rate of interest at which the central bank in India, the RBI, short-term borrows money from commercial banks is referred to as the reverse repo rate. Having a ready supply of cash available when needed is beneficial for the central bank. In exchange for the money provided by the commercial banks, RBI offers fantastic interest rates.
The extra money that commercial banks receive is likewise kept with the RBI since it is thought to be secure. The RBI will also make payments, which allows banks the opportunity to earn income on their unused funds.
How does this Reverse Repo Rate work
The Reverse Repo Rate affects the economy because banks deposit their excess cash with the RBI when the reverse repo rate is raised in order to earn interest. As a result, the economy has less money flowing through it, and banks find it more practical to transfer cash in the central bank than lending it to customers or businesses, which raises the rupee’s value.
Similar to this, RRR raises the reverse repo rate to contain inflation, and when conditions are right for an increase in inflation, RBI lowers both the reverse repo rate and the repo rate to infuse liquidity into the market.
More information about Reverse Repo Rate
As said, RRR full form is Reverse Repo Rate will create a support to invest their excess cash in low-risk government assets rather than extending credit to individuals, which will have an impact on house loans. Home loans become more expensive as a result, whereas lowering the reverse repurchase rate has the opposite impact. A high reverse repo rate causes the money supply to shrink, but a high repo rate causes the system to become more liquid. Always less than the repo rate is the reverse repo rate.