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REPO Full Form

REPO Full Form

Edited By Team Careers360 | Updated on Feb 11, 2023 03:33 PM IST

What is the full form of REPO?

The full form of 'repo' is repurchase operation. The Repo Rate (RR) is the cost of borrowing at which the Reserve Bank of India (RBI) loans money to Indian commercial banks or other financial institutions in exchange for the issuance of public debt. The repo rate for 2022 is now 4.40%. Changes in Repo Rate have an impact on how money moves through the market. By increasing the money supply, RBI rate cuts stimulate economic growth. When rates are high, it limits economic expansion. The concept of the repo rate, its operation, and the current economic impact of the RBI repo rate (RR) are all covered in detail in this article.

Risks of REPO

Repurchase agreements are typically thought of as tools that reduce the risk of credit. The biggest risk in a repo is that the dealer might break the terms of the arrangement by failing to collect the securities it was supposed to at the maturity date. In these circumstances, the buyer of the security may also attempt to recoup its initial outlay of cash by liquidating the security.

The general credit threat for repurchase agreements depends on a wide range of variables, including the sale's terms, the security's liquidity, the particulars of the involved counterparties, and much more.

REPO Significance

It belongs to the RBI's monetary policies. The Monetary Policy Committee meets every two months under the direction of the RBI Governor (MPC). It typically has six members. Together, they create, manage, and adjust the policy rates. Depending on whether there is a liquidity shortage or surplus in the nation, the RBI modifies it. The following are some of the elements of RR transactions between banks and the RBI:

  • RBI provides money to banks under a contract that calls for security. Bonds and securities are possible. RBI uses leveraging and hedging against bank securities to provide financial assistance.

  • Short-term borrowings include RR loans and other transactions. While the RBI holds the securities, banks receive overnight or term funding.

  • Banks have the option to repurchase securities at a predetermined price and on a given date. The interest is calculated at the RR on this price, which is the loan amount.

RBI REPO Rate History

May 1, 2021 publication by M. Pattabiraman

The table below shows the history of the RBI Repo rate from June 2000 to the present. The rate at which the RBI loans money to oligarchs the banks is known as the repo rate. It is a measure to control impact and liquidity.

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