Reverse Repo Rate
The rate at which the Reserve Bank borrows from commercial banks, absorbing surplus liquidity from the system.
Formula
Test: it is the rate the central bank pays banks for parking surplus funds with it
Unit
%
In depth
The reverse repo is the mirror of the repo and sets a floor under short-term money market rates, since no bank will lend to the market below what the central bank pays risk-free. Together with the repo it forms a corridor within which the overnight rate moves. Since 2022 the standing deposit facility rate has largely taken over this floor role in India's operating framework, which is a change in mechanics rather than in principle. When banks park very large amounts at this rate, it signals surplus liquidity and weak credit demand rather than a policy choice.
Worked example
With the repo at 6.50% and the standing deposit facility at 6.25%, the overnight rate should trade within that 25 basis point corridor. A rate persistently at the floor indicates the system is flush with unlent funds.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Reverse Repo Rate” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.