How Is Repo Rate Different from Bank Rate?

RBI increased repo rates by 50 basis points to 5.90% on Friday.

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This is the fourth time that the RBI increased the rate since May from 4% to 5.90%.

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The hike in the repo will pave the way for increasing the interest rates on fixed deposits by the banks.

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Let's find out the difference between Bank Rate and Repo Rate.

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Bank Rate: It is the rate charged when banks and other financial institutions take a long-term loan from the Central bank.

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Repo Rate: Central bank charges this rate when it grants short-term loans to commercial banks.

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Repo Rate is relatively lower than the bank rate.

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Unlike the repo rate, the bank rate does not involve a repurchase agreement.

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In a nutshell, both rates are used by the RBI to control liquidity and inflation in the market.

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