Reverse Repo Rate

Government of any country has complete command over the market situation where money flows from all the ways. If market has got excess money over the demand, government issues security bonds through the banks or financial institutions to get back that surplus money and if market running with the sort of money then government provides loans to the banks to make money available in the market. Reverse repo rate is one of the policies of the government to control the surplus money with the banks working under it.


Reverse repo rate is the interest rate that a government needs to pay to the banks on the deposits received from them.

When ever the government decreases the repo rate, the banks working under it will have sufficient capital with them for the continuity of the public deals and some times there is a high possibility of having surplus money than required money with them. If banks have more capital with them which is over and above the actual requirement, they need to deposit the excess capital with government bank as per the government rules and policies are concern and government needs to pay some interest for that deposit, otherwise this is where the market can be overflowed with the money and money value can be drastically decreased. So there will be a high demand of the government to control this excess money flow and decrease the interest rate on the deposits that are received from other banks of the country which are working under the government. In these circumstances, the government has full control over the market by decreasing/increasing the repo and reverse repo rates as and when government realizes as per the market situation demands. Hence the government decreases reverse repo rate to minimize the interest paid money to the banks and maintain the capital flow between them to have control over the market.