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Bank Rate and Repo rate: Understanding Monetary Policy (for UPSC CSE)
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This lesson continues the discussion on monetary policy and covers the very important concepts of bank rate and repo rate. It starts with the definition of Bank rate, its features and scope, why it is also called discount rate, it goes on to cover the objectives of the bank rate. It then covers the repo rate - its definition, features and objective. Finally it ends with important concluding remarks.

Ayussh Sanghi is teaching live on Unacademy Plus

Ayussh Sanghi
Passionate Educator - CSE / Other Govt Exams [Peep into my Unacademy Plus Courses & experience awesome learning.]

Unacademy user
sir, why bank rate don't have collaterals ??
sir pls explain y repo rate is always more than reverse repo rate?
a year ago
so that it will always be beneficial and profitable for RBI
SIr, do we keep collaterals in Bank Rates? What are the impacts of monetary committee on monetary policy framing. Is there any change?
Kannav Mittal
2 years ago
Bank don't keep collateral in bank rate with RBI.
Unacademy upsc
a year ago
but why bank rate don't have collaterals?
Ashutosh Aswale
a year ago
but banks keep collateral during lending the money at repo rate! i think that's the major difference between bank rate and repo rate!

  2. ABOUT ME >Passionate about Teaching >Taught at most reputed Civil Services Institutes >CA, Lawyer >Hit "Contribute to Ayussh" Follow me on: AyusshSanghi

  3. Bank Rate * It refers to the official interest rate at which RBI provides loans to the banking system. It includes: * commercial /cooperative banks, * development banks etc. * Such loans are given out by: * direct lending or * by rediscounting (buying back) the bills of commercial banks and treasury bills.

  4. Bank Rate * Hence, bank rate is also known as discount rate. * Bank rate is used as a signal by the RBI to the commercial banks on RBI's thinking of what the interest rates should be.

  5. Objective of Bank Rate When RBI increases the bank rate, the cost of borrowing for banks rises k This credit volume gets reduced leading to decline in * This credit volume gets redtuced leading to decline in supply of money Thus, increase in Bank rate reflects tightening of RBI monetary policy

  6. Repo Rate Repo rate, or repurchase rate, is the rate ak * This is done by RBI buying government bonds from ak banks with an agreement to sell them back at a fixed rate.

  7. Objective of Repo Kate * Objective is to inject liquidity in the system. In case RBI wants to make it expensive for banks to borrow money, it increases the repo rate. Similarly, if banks want to make it cheaper for banks to borrow money, it reduces the repo rate.

  8. Difference between Bank Kate and Repo Rate k Often seems Bank Rate and Repo Rate similar because in both of them RBI is lending to the banks. KS. * But Repo R ak to short-term loans and used for controlling the amount of money in the market.

  9. Difference between Bank Kate and Repo Rate Bank Rate is a long-term measure and is governed by the long-term monetary policies of the RBI

  10. Conclusion sk charges on the loans and advances that it extends to: commercial banks and other financial intermediaries. RBI uses this tool to control the money supply.