what is repo rate, reverse repo rate

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Home About Sitemap Writers welcome Win Gifts Subscribe Online stock trading | Stock market investing What is Repo Rate, Reverse Repo Rate ? by Sathish Emmadi ADVERTISEMENTS A repo or repurchase Agreement is an instrument of money market. Usually reserve bank (federal bank in U.S) and commercial banks involve in repo transactions but not restricted to these two. Individuals, banks, financial institutes can also participate in repurchase agreement. Repo is a collateralized lending i.e. the banks which borrow money from Reserve Bank to meet short term needs have to sell securities, usually bonds to Reserve Bank with an agreement to repurchase the same at a predetermined rate and date. In this way for the lender of the cash (usually Reserve Bank) the securities sold by the borrower are the collateral against default risk and for the borrower of cash (usually commercial banks) cash received from the lender is the collateral. Reserve bank charges some interest rate on the cash borrowed by banks. This rate is usually less than the interest rate on bonds as the borrowing is collateral. This interest rate is called ‘repo rate’. The lender of securities is said to be doing repo whereas the lender of cash is said to be doing ‘reverse repo’. In a reverse repo Reserve Bank borrows money from banks by lending securities. The interest paid by Reserve Bank in this case is called reverse repo rate. Borrower of funds is called as seller of repo and lender of funds is called as buyer of repo. When the term of the Ads by Google Repo Rate Forex Rates India India Repo Cars Job Openings in HDFC TimesJobs.com/HDFC Exp: 0 to 13 Yrs.Sal: 25k to 95k PM Apply Now & get Multiple Interviews Your Card, Your Design www.standardchartered.co.in/breeze Standard Chartered Breeze Banking Apply now! SBI Life Policy Online epolicy.sbilife.co.in Buy your SBI Life Policy in 5 simple steps! L I C के साथ www.policybazaar.com/Insurance अब करोड़पत बनना है आसान, Invest With New Plans What is Repo Rate, Reverse Repo Rate ? http://lastbull.com/what-is-reporate-reverse-reporate/ 1 of 22 11/20/2011 3:34 PM

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What is Repo Rate, Reverse Repo Rate ?

http://lastbull.com/what-is-reporate-reverse-reporate/

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A repo or repurchase Agreement is an instrument of money market. Usually reserve bank (federal bank in U.S) and commercial banks involve in repo transactions but not restricted to these two. Individuals, banks, financial institutes can also participate in repurchase agreement. Repo is a collateralized lending i.e. the banks which borrow money from Reserve Bank to meet short term needs have to sell securities, usually bonds to Reserve Bank with an agreement to repurchase the same at a predetermined rate and date. In this way for the lender of the cash (usually Reserve Bank) the securities sold by the borrower are the collateral against default risk and for the borrower of cash (usually commercial banks) cash received from the lender is the collateral. Reserve bank charges some interest rate on the cash borrowed by banks. This rate is usually less than the interest rate on bonds as the borrowing is collateral. This interest rate is called repo rate. The lender of securities is said to be doing repo whereas the lender of cash is said to be doing reverse repo. In a reverse repo Reserve Bank borrows money from banks by lending securities. The interest paid by Reserve Bank in this case is called reverse repo rate. Borrower of funds is called as seller of repo and lender of funds is called as buyer of repo. When the term of the

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loan is for one day it is known as an overnight repo and if it is for more than one day it is called a term repo. The forward clean price of bonds is set at a level which is different from the spot clean price by adjusting the difference between repo rate and coupon earned on the security. Be Sociable, Share!

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Sathish Emmadi

Sathish Emmadi is a co-founder & editor at Lastbull.com. He is presently working in IT for one of the worlds top mutual fund companies. Handled multiple projects in BFSI (Banking,Financial Services and Insurance) domain. An Engineering Graduate from NITW. Related posts: 1. 2. 3. 4. 5. Money Market Basics Call Money Market Certificate of Deposit/CD Factors influencing Price of a Bond BSE quotes Bid Qty / Rate, Ask Rate / Qty Enter your email address to get posts into inbox directly for FREE:

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{ 87 comments read them below or add one }

sandeep January 16, 2011 at 3:47 pm please tell me a repo rate, s.l.r, bank rate Reply

Sathish Emmadi January 16, 2011 at 4:16 pm Hi Sandeep, Now the bank rate is 6%, Repo rate is 6.25%, Reverse Repo rate is 5.25% and SLR is 24%, CRR is

RICKY SETH June 30, 2011 at 8:19 am repo rate is a rate at which commerial banks borrow money from rbi to fulfil short term goals called repo rate. bank rate is a rate at which central bank ready to give money to commercial banks. slr not sure what is? Reply

kanchan February 11, 2011 at 2:40 pm i want to knew about repo rate reverse repo rate slr crr and plrplz tell me about all these and i m so confuse about money inflection, and deflation . Reply

manish bansal March 2, 2011 at 10:19 am Hi this is manish. i want to know that what is means of Repo Rate and what is reverse Repo Rate and what is CRR and what is the means of bank rate and means of CRR

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Reply

Pankaj Priyadarshi March 2, 2011 at 6:21 pm Kanchan, Manish Repo rate is rate at which banks borrow from RBI. Reverse repo is rate at which RBI borrows from banks. These rates impact the liquidity in the system. CRR is cash reserve ratio. This is the cash that is kept in RBI by different banks. For example, out of Rs 100 deposit in any bank, Rs 9 should be kept at RBI (if the CRR is 9%). Reply

Ankur Singh Chauhan March 11, 2011 at 5:42 am What is CRR (For Non Bankers) : CRR means Cash Reserve Ratio. Banks in India are required to hold a certain proportion of their deposits in the form of cash. However, actually Banks dont hold these as cash with themselves, but deposit such case with Reserve Bank of India (RBI) / currency chests, which is considered as equivlanet to holding cash with themselves.. This minimum ratio (that is the part of the total deposits to be held as cash) is stipulated by the RBI and is known as the CRR or Cash Reserve Ratio. Thus, When a banks deposits increase by Rs100, and if the cash reserve ratio is 9%, the banks will have to hold additional Rs 9 with RBI and Bank will be able to use only Rs 91 for investments and lending / credit purpose. Therefore, higher the ratio (i.e. CRR), the lower is the amount that banks will be able to use for lending and investment. This power of RBI to reduce the lendable amount by increasing the CRR, makes it an instrument in the hands of a central bank through which it can control the amount that banks lend. Thus, it is a tool used by RBI to control liquidity in the banking system. What is SLR ? (For Non Bankers) : SLR stands for Statutory Liquidity Ratio. This term is used by bankers and indicates the minimum percentage of deposits that the bank has to maintain in form of gold, cash or other approved securities. Thus, we can say that it is ratio of cash and some other approved to liabilities (deposits) It regulates the credit growth in India. What are Repo rate and Reverse Repo rate? Repo (Repurchase) rate is the rate at which the RBI lends shot-term money to the banks. When the repo rate increases borrowing from RBI becomes more expensive. Therefore, we can say that in case, RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate; similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate Reverse Repo rate is the rate at which banks park their short-term excess liquidity with the RBI. The RBI uses this tool when it feels there is too much money floating in the banking system. An increase in the reverse repo rate means that the RBI will borrow money from the banks at a higher rate of interest. As a result, banks would prefer to keep their money with the RBI. Reply

K.Bala March 15, 2011 at 2:24 pm

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Good explaination Ankur Singh. You left bank rate. Explain that too will do great. Thanks Reply

Vibha March 22, 2011 at 11:58 am @ K.Bala.. Bank Rate is interest rate @ which Central Bank (In India RBI) lends Loans and Advances to commercial banks or FIs for long term basis .Bank rate is also known as Discount Rate and it is differ from Repo Rate cause Repo Rate is for short term loans by RBI to banks. Reply

Gaurav October 5, 2011 at 4:18 am Very Good Explanation Ankur..Thanks ! Reply

pavithra March 18, 2011 at 5:20 am hi this is pavithra, i would like to know about the credit control facilities of RBI. please help me knowing that! Reply

FATIMA HUSSAIN March 18, 2011 at 6:24 am sir now the RBI has hiked its repo rate &reverse repo rate. What would be its immediate effect? Reply

sumit May 2, 2011 at 9:48 am Sir, Are you tell me in deatils about SLR and CRR. Reply

Fenil May 3, 2011 at 11:34 am Hi,..Its fenil here..I dont understand that y RBI will borrow money from banks ? Reply

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jiten July 27, 2011 at 6:47 am To maintain liquidity in the market. To maintain value of Rupee at a reasonable level. Reply

D.CH.APPARAO May 3, 2011 at 6:10 pm what is repo Reply

Swati Gawde May 7, 2011 at 5:47 am repo means repurchase. when banks need money they borrow from from RBI and pay some rate of interest to RBI. They borrow from RBI for their short term needs. Reply

kuldeep June 25, 2011 at 4:46 am plz tell me about SDR and CAR.Spiceal drawing rate and capital adiquacy retio.

Sathish Emmadi June 25, 2011 at 12:03 pm Hi Kuldeep, I will cover CAR. SDR is not related to RBI or any Central bank though. Reply

amrit pal singh May 8, 2011 at 2:15 pm How much currency a country can print or havr? Reply

Sathish Emmadi May 8, 2011 at 3:46 pm Hi Fenil,

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Reverse repo is basically to absorb liquidity in the market rather than RBIs funds requirement. RBI pays interest on the excess short term money (very short term in fact) parked by banks. Hope it clarifies! Please note that this money parked at RBI by banks is different from CRR requirement. CRR is must for banks whereas reverse repo is voluntary. Reply

Sathish Emmadi May 8, 2011 at 3:58 pm Hi Amrit, As far as my knowledge goes, there is no restriction. Central bank has freedom to print currency. But it prints only in the required amounts. Excess printing will cause loss of value of currency as we have seen hyper-inflation in Zimbabwe in recent times. Reply

JAI KISHAN October 14, 2011 at 6:54 pm Sir, plz tell me abt SLR if can possible plz tell in easy language

amit patel May 16, 2011 at 7:11 pm sir, what is stagflation? Reply

vikas kharb May 17, 2011 at 5:30 am sir plz explain repo rate and reverse repo rate? and current rate is going on. Reply

Vishwa P Mishra May 17, 2011 at 10:52 am Sir, I understand that the new monetary policies( ie increased repo & reverse repo rates) are going to trap the Growth, as they have. But I am not able to follow when Mr. Finance Minister says it will curb the Inflation. Could you please explain the know-how. Thank You! Reply

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Sathish Emmadi May 17, 2011 at 5:30 pm Hi Vikas, Current rates are as below. Repo rate: 7.25% Reverse repo rate is: 6.25% Reply

Sathish Emmadi May 17, 2011 at 5:37 pm Hi Vishwa, Increasing policy rates is the traditional way of controlling liquidity in the market. When RBI increases base rates, banks increase their interest rates both deposit as well as loans. As a result, there will be less people who take loans and investors are encouraged to deposit their money in banks rather than spending. When there is less spending there will be less inflation. Regarding growth: When the interest are high, a company which takes loans for a business has to pay more amount of interest, so profits will come down. So there is a less probability of expanding businesses. so less growth rate. Hope it is clear. Reply

Vishwa P Mishra June 3, 2011 at 6:16 am Clean!! thank you Sathish.. Reply

Inder May 21, 2011 at 2:17 pm Will you please let me know the defination of SHARPE RATIO with some examples Reply

Sathish Emmadi May 21, 2011 at 2:22 pm Hi Inder, Sharpe ratio is used to measure a mutual fund managers ability in generating profits considering the risk he has taken. I will cover it in a separate post.

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A higher Sharpe ratio is preferable as it denotes higher returns for the risk taken. A negative Sharpe ratio indicates that the fund is performing worse than a riskless asset. Reply

Dheeraj May 23, 2011 at 7:55 am Hi, Is there any alternative to control inflation other than increasing interest rates? Reply

Sathish Emmadi May 23, 2011 at 5:24 pm Next in the list are, Governments fiscal policy. For example, if government offers more tax benefits on investments, people will invest more than spending. Currency ex-rates too play a role. For example, In an European country if the bank rates are very less, say 3%. Instead of keeping their money in their countrys banks, they will try to invest in India. This appreciates rupee against that currency. In this case RBIs stand makes a difference i.e. to manipulate currency market by involving in trading and depreciate rupee intentionally so that exporters wont be affected adversely or allow the appreciation of rupee. Reply

Aniket May 27, 2011 at 1:26 pm i would like to know the effect of increase in repo & reverse repo rate & CRR & SLR on the economy & inflation Reply

Sathish Emmadi May 27, 2011 at 1:38 pm Hi Aniket, Repo and reverse repo are discussed in the articles and comments. Please visit the below articles for CRR and SLR http://lastbull.com/what-is-cash-reserve-ratio-crr/ http://lastbull.com/what-is-statutory-liquidity-ratio-slr/ Reply

Vishwa P Mishra June 3, 2011 at 6:26 am

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Mr. Sathish, Would you say that the RBI policy to increase Repo/reverse-Repo rates was successful in achieving its primary goal to stop further inflation(it was definitely able to stop further growth)? Would you also agree that it was the best way to stop inflation? Can we design a way to control inflation without affecting the Growth radical? Reply

Sathish Emmadi June 4, 2011 at 4:54 pm Hi Vishwa, Clearly it is not successful. But there should be an initiative from Governments side too like eliminating rigging of agriculture product prices etc and take steps to increase supply wherever it is lacking. Reply

Pankaj Priyadarshi June 7, 2011 at 5:38 am Vishwa Sathish is right. The inflation is more because of the price manioulation and lack of supply. Moreover, India is trying to reduce inflation by focusing on demand side (like raising policy rates). The issue is on the supply side. India produces enough agriculture produce but it is not reaching to the market. Lot of foodgrains rot in godown and in open. Reply

Balaji June 8, 2011 at 7:16 am Hi, I need some clarifications : 1.Does inflation has any connection with recession,if so what is it..? 2.What are the effects of printing more curreny? 3.How is dollar value related to Indian Rupee.? Morover, i am interested in knowing about all these businnes related,markets,sensex etc..Could you please suggest a link or site where i can understand,on a beginners perspective.? Reply

Sathish Emmadi June 8, 2011 at 1:27 pm Hi Balaji, You have come to the right website. We have already posted a number of articles on many subjects of stock market for beginners. Either search with a specific key word in the search box provided at the top of the page or click on the categories listed out on the left hand side of the page and go through them.

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Reply

AKASH DUTTA June 14, 2011 at 4:10 am hi i am interested in bank PO jobs will you suggest me some tips to crack test. Reply

Sathish Emmadi June 17, 2011 at 6:49 pm As you know the RBI has increased key policy rates by 25 bps. The current rates are as below Repo rate: 7.5% Reverse Repo rate: 6.5% Bank Rate: 6% Reserve ratios are untouched. Reply

BALRAM RAYKA June 23, 2011 at 12:07 pm sir what is the meaning of slr ,bank rate ,crr. Reply

Sathish Emmadi June 23, 2011 at 2:49 pm Hi Balram, Please visit the below links http://lastbull.com/what-is-cash-reserve-ratio-crr/ http://lastbull.com/what-is-statutory-liquidity-ratio-slr/ Reply

MEENA June 24, 2011 at 1:48 pm MR.SATISH , what is Repo rate ? what is reverse repo rate? and about SRR ,SLR? Reply

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Sathish Emmadi June 24, 2011 at 2:49 pm Hi Meena, This article and the links mentioned in the comments cover the topics, Do you have any specific query regarding the content of the article? Reply

ASHU KUMAR June 25, 2011 at 3:59 am DEAR SIR, KINDLY UPDATE ME REGARDING THE REPO RATE, RRR, PLR, BANK RATES, GDP RATE, AND ETC. THANKS AND REGARDS ASHU KUMAR SINGH Reply

SUJIT July 7, 2011 at 5:26 pm T hanks Mr Ankur.you gave me a clear idea abou thes things.But i am little bit confused about SLR .If you will give more information about these then it will be better.this is priliminary idea plz inform related things also. Reply

Sathish Emmadi July 8, 2011 at 4:01 pm Hi Sujit, Have you read the below article on SLR? http://lastbull.com/what-is-statutory-liquidity-ratio-slr/ Reply

neeraj July 9, 2011 at 5:48 pm hello sir, please tell me what is repo rate and what is reverse repo rate in the easiest language. Reply

ANURAG July 11, 2011 at 9:50 am How does RBI circulate money which it prints in INDIA?

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Reply

Prameela July 13, 2011 at 9:01 am Hi Sathish, I am preparing for SBI PO Exam.Please suggest some good books that I could refer to.keeping in mind that I just have 10 days to do so Reply

Anusuya July 20, 2011 at 2:58 am Why repo rate is higher than bank rate, even though lending at the cost of repo is secured loan and no collateral is needed for lending at the rate of bank rate? Reply

KAPIL KUMAR July 23, 2011 at 3:17 am hi sir new repo rate /slr/reverse repo rate /bank rate discresed /increased sent my id please. thanks. Reply

Archana kumari July 23, 2011 at 8:54 am What is current Repo rate,Reverse repo rate,SLR,CRR,bank rate. Reply

Sathish Emmadi July 24, 2011 at 1:05 pm Hi Archana/Kapil, Current Bank Rate is 6.0%, Reverse repo rate is 6.5% and reporate is 7.5%. CLR is 6% and SLR is 24% Reply

Sathish Emmadi July 24, 2011 at 1:16 pm Hi Neeraj, I feel the language used in the article is for a layman. If you haveany specific doubts, please let me know.

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Reply

Sathish Emmadi July 24, 2011 at 1:18 pm Hi Anurag, The simple answer is Through Banks. Reply

Sathish Emmadi July 24, 2011 at 1:20 pm Hi Prameela, Apologies for the delayed response. I dont have much idea about bank exams and MBA. I am an engineering graduate by qualification. Out of my own interest, I learned financial concepts. Reply

Sathish Emmadi July 24, 2011 at 2:14 pm Hi Anusuya, It depends on RBIs perspective of long term and short term loans. Repo rate is for a short term and bank rate is for long term loans. In a developing country, the central bank may want to keep long term rates low to encourage overall economic growth. Reply

rudresh arya July 25, 2011 at 4:04 pm hi, i m a buznssman, but i don have any comercial property may i get a limit from any bank. Reply

Sathish Emmadi July 26, 2011 at 3:34 pm Hi Rudresh, I didnt get your question. Did you mean getting a loan from a bank? Reply

Sathish Emmadi July 26, 2011 at 3:36 pm

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Current bank rate is 6%, repo rate is 8% and reverse repo rate is 7%. No change to CRR and SLR i.e. CRR is at 6% and SLR is at 24%. Reply

vinay August 1, 2011 at 10:09 am hello Mr. sathish, i would like to know what is the relation between SLR and CRR? Is SLR include CRR . i mean bank have to deposit some money in form of cash at RBI according to CRR and bank have to also maintain some deposit in form of gold, cash and other securities as per SLR. so the cash deposited in form of CRR includes in SLR or not. Reply

Sathish Emmadi August 1, 2011 at 6:23 pm Hi Vinay, As per my knowledge SLR doesnt include CRR. In case of CRR the banks have to park some amount of Cash with RBI whereas in case of SLR banks have to maintain some amount of cash and cash equivalents in their own accounts to meet customer withdrawal requests. SLR also ensures banks will not give away more money in loans. By holding cash equivalents the banks earn some amount. For example, by holding G-Secs, the banks receive interest. Reply

ash August 4, 2011 at 5:40 pm for maximum how many days a bank can borrow money from rbi at repo rate? Reply

Sathish Emmadi August 5, 2011 at 2:46 pm Hi Ash, The maximum repo period is 14 days in India. You may be interested in repo calculations. http://lastbull.com/calculations-involved-in-repo-and-reverse-repo/ Reply

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Ramana IAS Studypoint August 10, 2011 at 3:25 am NIce work. Also visit my blog. Reply

shashank verma August 12, 2011 at 9:58 am what is current repo rate ,reverse repo rate,bank rate,CRR and SLR? Reply

Sathish Emmadi August 15, 2011 at 8:46 am Hi Shashank, The current bank rate is 6%, reverse repo rate is 7% and repo rate is 8%. CRR is 6% and SLR is 24% Reply

gaurav August 22, 2011 at 4:17 am sir please tell me the difference between BANK RATE AND REPO Reply

gaurav August 22, 2011 at 4:22 am sir, what is current inflation rate and its change daily? Reply

gaurav August 22, 2011 at 4:26 am what are the mordern way to control inflation not traditional ? other than slr ,crr, bank rate, repo, reverse repo. Reply

Sathish Emmadi August 23, 2011 at 3:45 pm

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Hi Gaurav, Quantitative Easing techniques are the unconventional way of controlling economy. These days every one is talking about if Federal bank can apply QE3 to stimulate US economy. Reply

Sathish Emmadi August 23, 2011 at 3:52 pm Inflation is not calculated daily. You can keep track of inflation numbers on the below site every month. http://statisticsofindia.com/tatasoi/ Reply

gaurav August 24, 2011 at 12:28 pm what is m3growth 16.7 ? and what is wpi 153? Reply

rajesh sharma August 31, 2011 at 11:41 am What is repo rate and reverse repo rate and how it affects on inflation control? Reply

SIDDHARTH September 10, 2011 at 8:26 pm CRR- it is also known as CASH RESERVE RATIO, it is the amount of money which the commercial banks has to keep with RBI SLR-it is also known as STATUTORY LIQUIDITY RATIO , it is valued in terms of liquid assets of banks which the banks has to keep with RBI. REPO RATE-it is the rate at which RBI gives loan to commercial banks REVERSE REPO RATE-it is the rate at which the commercial banks gives loan to RBI. AT THE TIME OF INFLATION RBI INCREASES THE (CRR,SLR) AND THUS DECREASE THE LOAN GIVING CAPACITY OF COMMERCIAL BANKS IN ORDER TO REDUCE THE MONEY SUPPLY IN THE ECONOMY AT THE TIME OF DEFLATION RBI DECREASES THE (CRR,SLR) AND THUS INCREASE THE LOAN GIVING CAPACITY OF COMMERCIAL BANKS IN ORDER TO INCREASE MONEY SUPPLY IN THE ECONOMY

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Reply

Archana September 16, 2011 at 2:21 pm hello sir, I want to know that hike in repo & reverse repo rate affects profitability of commercial banks or not ?If yes then how positively or negatively? If negatively then what commercial banks can do to maintain profitability even after hike in rates? If positively then how? Reply

kiran September 27, 2011 at 8:41 am ciao sir, I want numeric data about the latest monetry policy measurement & the repo rate, reverse repo rate & CRR rate of year 2007 to 2010 awaiting for your reply Reply

Sathish Emmadi September 29, 2011 at 4:41 pm Hi Kiran, Please try searching on RBI site. You may get it in the archives. The info available on any other site may not be accurate. Reply

Bhushan October 6, 2011 at 5:43 pm Hi Satish, Could you please focus whether repo rate and reverse repo rate will benefited to Co-operative Banks or it adversely affect to compete with nationalized banks. Reply

Kamal singh October 7, 2011 at 5:23 am Sir What is B.P.L.R.? Reply

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JAYANTHI October 25, 2011 at 9:59 am THANKS A TON TO SATHISH EMMADI:):):) GOT ALL MY STUFFS CLEARED:):):):):) HAPPY DIWALI TO ONE AND ALL:):):) NOW REPO RATE IS 8.25% AND AGAIN THE REASON BEHIND IT IS TO CURB THE INFLATION:(:( over all no growth Reply

philip November 15, 2011 at 10:42 pm how does govt raise money for investments through open market operation?? Govt buys or sells securities. Plz c Reply

Jignesh November 16, 2011 at 6:29 am what is meaning of CRR/reporate/reversreporate? Reply

sudha November 16, 2011 at 10:13 am sir, my name is sudha, sir please tell me what repo rate , reverse repo rate , crr, and bank rate. please tell me sir Reply Leave a Comment Name * E-mail * Website

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What is Repo Rate, Reverse Repo Rate ?

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