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By IndianMoney , 1 year ago

Repo rate is the rate at which commercial banks borrow money from the central bank and reverse repo rate is the rate at which, central bank borrows money from commercial banks. Repo rate increases liquidity and reverse repo rate controls liquidity in the system. When repo rate increases, the borrowing cost increases for the banks, which will be passed on to customers. hence the overall borrowing activity reduces. when reverse repo rate increases bank's lending activity increases, and this controls inflation.

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