REPOS AND REVERSE REROS: UPSC Daily Important Topic | 4 October 2021

REPOS AND REVERSE REROS

• In the era of economic reforms there developed two new instruments of money market-repo and reverse repo.
• Considered the most dynamic instruments of Indian money market they have emerged the most favoured route to raise short-term funds in India.
• ‘Repo’ is basically an acronym of the rate of repirchase. The RBI in a span of four years, introduced these instruments-repo in December 1992 and reverse repo in November 1996.
• Repo allows the banks and other financial institutions to borrow money from the RBI for short-term (by selling government securities to thr RBI).
• In reverse repo, the banks and financial institutions purchase govenment securitied from the RBI (basically here the RBI is burrowing from the banks and the financial institutions.)
• All govenment securities are dated and the interest for the repo or reverse repo transactions are announched by the RBI from time to time.