Explained: How reverse repo rate became benchmark interest rate in the economy -Udit Misra

-The Indian Express

Like most other central banks in the world, the Reserve Bank of India, too, has tried to cut interest rates to boost the economy.

New Delhi: The Indian economy’s slowdown during 2018 and 2019 is becoming much worse in 2020 with the spread of COVID-19 and the stalling of almost all economic activity. Like most other central banks in the world, the Reserve Bank of India, too, has tried to cut interest rates to boost the economy. However, unlike in the past, when the RBI used its repo rate as the main instrument to tweak the interest rates, today, it is the reverse repo rate that is effectively setting the benchmark.

What are repo and reverse repo rates?

The repo rate is the rate at which the RBI lends money to the banking system (or banks) for short durations. The reverse repo rate is the rate at which banks can park their money with the RBI.

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