Question

what is repo rate?

Answer 1

Repo rate is the short-term interest rate at which central bank lends to other banks. It is an instrument at the disposal of Central bank for controlling inflation,others being CRR,SLR etc.

Answer 2

A repo is a short form for repurchase agreement. Typically an institution will sell (usually a treasury bond) and agree to buy it back at a future date (typically the next day) at a predetermined price. It is a method of taking out a secured short term loan. The performance is guaranteed by the collateral of the instrument sold. If the institution fails to come up with the money to buy back the instrument at the pre-determined time, the counter-party can retain possession of whatever was sold or sell it. The price difference between the price the instrument was sold at and the agreed price at which it will be repurchased reflects an implied interest rate. Generally when you hear the term repo rate in the market what is meant is the implied interest rate on overnight repurchase agreements for US treasuries.