{"id":14116,"date":"2026-05-27T07:38:08","date_gmt":"2026-05-27T07:38:08","guid":{"rendered":"https:\/\/lemonn.co.in\/blog\/glossary\/reverse-repo-rate\/"},"modified":"2026-05-27T07:38:08","modified_gmt":"2026-05-27T07:38:08","slug":"reverse-repo-rate","status":"publish","type":"glossary","link":"https:\/\/lemonn.co.in\/blog\/glossary\/reverse-repo-rate\/","title":{"rendered":"Reverse Repo Rate"},"content":{"rendered":"

The reverse repo rate<\/a> is the rate at which commercial banks park their excess funds with the Reserve Bank of India. When banks have surplus money they do not need immediately, they deposit it with the RBI and earn interest at the reverse repo rate<\/a>. The RBI uses this tool to absorb excess liquidity<\/a> from the banking system and control inflation<\/a>.<\/p>\n

What Is the Reverse Repo Rate?<\/h2>\n

The reverse repo rate is essentially the opposite of the repo rate. In a repo transaction<\/a>, banks borrow from the RBI by pledging government securities. In a reverse repo transaction, banks lend to the RBI and earn interest. By adjusting the reverse repo rate, the RBI controls how much money banks keep parked with it versus lending to businesses and consumers.<\/p>\n

When the RBI raises the reverse repo rate, it becomes more attractive for banks to park funds with the RBI instead of lending in the market. This reduces money supply in the economy and helps control inflation.<\/p>\n

Current Framework<\/h2>\n

In 2022, the RBI introduced the Standing Deposit Facility (SDF) as the new floor rate for its Liquidity Adjustment Facility corridor, replacing the reverse repo rate in this role. The SDF rate is now set 0.25% below the repo rate. However, the reverse repo rate remains part of the system and is still quoted as a reference rate.<\/p>\n

Reverse Repo Rate vs Repo Rate<\/h2>\n

| Feature | Reverse Repo Rate | Repo Rate |
\n|———|——————|———–|
\n| Direction | Banks lend to RBI | Banks borrow from RBI |
\n| Effect on liquidity | Reduces money supply | Increases money supply |
\n| Rate level | Lower than repo rate | Higher than reverse repo rate |
\n| Primary purpose | Absorb excess liquidity | Inject liquidity |<\/p>\n

Impact on the Economy<\/h2>\n

– **When reverse repo rate rises** – banks prefer to park money with RBI; lending reduces; inflation cools
\n– **When reverse repo rate falls** – parking with RBI becomes less attractive; banks lend more; economic activity picks up<\/p>\n

Practical Example<\/h2>\n

After a period of government spending, there is excess cash in the banking system. Banks have more deposits than they can efficiently lend. They park Rs 2 lakh crore with the RBI at the reverse repo rate of 3.35%. This earns them safe, guaranteed interest and prevents excess money from fuelling inflation through excessive lending.<\/p>\n

Key Takeaways<\/h2>\n

– The reverse repo rate is the rate RBI pays banks for parking excess funds with it
\n– It is a tool to absorb surplus liquidity from the banking system
\n– A higher reverse repo rate reduces lending and money supply; a lower rate encourages lending
\n– The Standing Deposit Facility (SDF) has largely replaced the reverse repo rate as the floor rate in the RBI’s liquidity corridor
\n– The reverse repo rate is always lower than the repo rate<\/p>\n","protected":false},"excerpt":{"rendered":"

The reverse repo rate is the rate at which commercial banks park their excess funds with the Reserve Bank of India. When banks have surplus money they do not need immediately, they deposit it with the RBI and earn interest at the reverse repo rate. The RBI uses this tool to absorb excess liquidity from […]<\/p>\n","protected":false},"author":3,"featured_media":0,"menu_order":0,"template":"","meta":{"_uag_custom_page_level_css":"","footnotes":""},"class_list":["post-14116","glossary","type-glossary","status-publish","hentry"],"blocksy_meta":[],"uagb_featured_image_src":{"full":false,"thumbnail":false,"medium":false,"medium_large":false,"large":false,"1536x1536":false,"2048x2048":false,"web-stories-poster-portrait":false,"web-stories-publisher-logo":false,"web-stories-thumbnail":false},"uagb_author_info":{"display_name":"Team Lemonn","author_link":"https:\/\/lemonn.co.in\/blog\/author\/ashu\/"},"uagb_comment_info":0,"uagb_excerpt":"The reverse repo rate is the rate at which commercial banks park their excess funds with the Reserve Bank of India. When banks have surplus money they do not need immediately, they deposit it with the RBI and earn interest at the reverse repo rate. The RBI uses this tool to absorb excess liquidity from…","_links":{"self":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary\/14116","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary"}],"about":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/types\/glossary"}],"author":[{"embeddable":true,"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/users\/3"}],"version-history":[{"count":0,"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary\/14116\/revisions"}],"wp:attachment":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/media?parent=14116"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}