REPOS and REVERSE REPOS

 📍 REPOS and REVERSE REPOS

💡 In the era of economic reforms there developed two new instruments of money market— repo and reverse repo. 

💡 Considered the most dynamic instruments of the 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 repurchase. 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 the RBI). 

💡 In reverse repo, the banks and financial institutions purchase government securities from the RBI (basically here the RBI is borrowing from the banks and the financial institutions). 

💡 All government securities are dated and the interest for the repo or reverse repo transactions are announced by the RBI from time to time.