What is a'Repo Rate'
Repo rate is the rate at
which the central bank of a country (RBI in case of India) lends money to
commercial banks in the event of any shortfall of funds.
Definition: Repo rate
is the rate at which the central bank of a country (Reserve Bank of India in
case of India) lends money to commercial banks in the event of any shortfall of
funds. Repo rate is used by monetary authorities to control inflation.
Description: In the event of inflation, central banks increase repo rate as this acts as a disincentive for banks to borrow from the central bank. This ultimately reduces the money supply in the economy and thus helps in arresting inflation.
The central bank takes the contrary position in the event of a fall in inflationary pressures. Repo and reverse repo rates form a part of the liquidity adjustment facility.
Description: In the event of inflation, central banks increase repo rate as this acts as a disincentive for banks to borrow from the central bank. This ultimately reduces the money supply in the economy and thus helps in arresting inflation.
The central bank takes the contrary position in the event of a fall in inflationary pressures. Repo and reverse repo rates form a part of the liquidity adjustment facility.
What is a 'Reverse Repo Rate'
Reverse repo rate is the
rate at which the central bank of a country (RBI in case of India) borrows
money from commercial banks within the country.
Definition: Reverse
repo rate is the rate at which the central bank of a country (Reserve Bank of
India in case of India) borrows money from commercial banks within the country.
It is a monetary policy instrument which can be used to control the money
supply in the country.
Description: An increase in the reverse repo rate will decrease the money supply and vice-versa, other things remaining constant. An increase in reverse repo rate means that commercial banks will get more incentives to park their funds with the RBI, thereby decreasing the supply of money in the market.
Description: An increase in the reverse repo rate will decrease the money supply and vice-versa, other things remaining constant. An increase in reverse repo rate means that commercial banks will get more incentives to park their funds with the RBI, thereby decreasing the supply of money in the market.
What is a 'Bank Rate'
Bank rate is the rate
charged by the central bank for lending funds to commercial banks.
Definition: Bank rate
is the rate charged by the central bank for lending funds to commercial banks.
Description: Bank rates influence lending rates of commercial banks. Higher bank rate will translate to higher lending rates by the banks. In order to curb liquidity, the central bank can resort to raising the bank rate and vice versa. . Marginal standing facility is a window for banks to borrow from the Reserve Bank of India in an emergency situation when inter-bank liquidity dries up completely.
Description: Bank rates influence lending rates of commercial banks. Higher bank rate will translate to higher lending rates by the banks. In order to curb liquidity, the central bank can resort to raising the bank rate and vice versa. . Marginal standing facility is a window for banks to borrow from the Reserve Bank of India in an emergency situation when inter-bank liquidity dries up completely.
What is a "Marginal standing facility (MSF)"
Definition: Marginal
standing facility (MSF) is a window for banks to borrow from the Reserve Bank
of India in an emergency situation when inter-bank liquidity dries up
completely.
Description: Banks borrow from the central bank by pledging government securities at a rate higher than the repo rate under liquidity adjustment facility or LAF in short. The MSF rate is pegged 100 basis points or a percentage point above the repo rate. Under MSF, banks can borrow funds up to one percentage of their net demand and time liabilities (NDTL).
What is the 'Call Money
Rate'
The call money rate is the
interest rate on a type of short-term loan that banks give to brokers who in
turn lend the money to investors to fund margin accounts. For both
brokers and investors, this type of loan does not have a set repayment schedule
and must be repaid on demand.
BREAKING DOWN 'Call Money
Rate'
Trading on margin is a risky
strategy in which investors make trades with borrowed money. The
advantage of margin trading is that investment gains are magnified; the
disadvantage is that losses are also magnified. When investors trading on
margin experience a decline in equity past a certain level relative
to the amount they have borrowed, the brokerage will issue a margin call that
requires them to deposit more cash in their account or to sell enough
securities to make up the shortfall.
(Inputs from Economic Times,rbi,other financial sights)
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