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Stock Market Learner’s Guide

What is Repo Rate? How does change in Repo Rate affect economy growth?

What is Repo Rate?

repo rate

Repo rate (also known as Repurchase rate) is the rate at which the Central Bank of the country (in India, RBI is the central bank) lends shot-term money to the banks against their securities. In other words, we can say that the Repo rate is a rate at which banks borrow money from RBI for short periods up to 7 or 14 days. In India, the Repo rate is a similar instrument of monetary policy to inject liquidity in banking system as the discount rate in the United State.

How does change in Repo Rate affect economy growth?

The repo rate is managed by RBI which is the cost of credit for the banks. When RBI reduces the repo rate, the banks get money at a cheaper rate and on the contrary when RBI increases the repo rate the banks get money at a higher rate. Therefore, we can say the economy growth of the country may slow at higher repo rates whereas the economy growth of the country may get enhanced at lower repo rates.

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What is Repo Rate? How does change in Repo Rate affect economy growth?
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