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Difference between Bank rate, Repo rate and Reverse Repo rate


Today I will discuss what is Bank rate, Repo rate and Reserve repo rate and how they are different from each other.
Bank rate is a rate at which central bank charge interest from commercial bank on loan offered by central bank. It is also known as Discount rate. Repo rate is a rate at which commercial bank sell securities to central bank. It is also known as repurchasing rate. Reserve repo rate is a rate at which commercial bank or other financial institutions give loan to central bank. The entire three rate are monetary policy instruments to control the money supply and credit.

Difference between Bank rate, Repo rate and Reverse repo rate:
S.No.
Point of difference
Bank rate
Repo rate
Reverse repo rate
1.
Meaning of bank rate, reverse repo rate and repo rate
It is a rate on which central bank provides loan to commercial bank.
It is a rate on which commercial bank sell securities to commercial bank. There is a agreement which is known as repurchasing agreement which specify the rate and date of buying those securities by commercial bank.
It is a rate on which commercial bank provides loan to central bank.  Or if there is a profit in a commercial bank then they deposit in central bank and on that deposit interest is paid to commercial bank.
2.
Higher rate of interest
The rate of interest is high in comparison to repo rate and reverse repo rate.
The rate of interest is low in comparison to bank rate. It is always higher than reverse repo rate.
The rate of interest is low in comparison to bank rate and repo rate.
3.
Control of money supply in an economy
It is used to control the credit supply by increasing rate which makes costlier to borrow funds from bank.
It is used to control the inflation by increasing the repo rate.
If rate is high then it reduces the money supply in an economy because banks are more willing to deposit in banks.
4.
Rate charged on loan or buying a securities
The rate of interest is charged against loan offered by central bank.
The rate of repurchasing securities from commercial bank.
The rate of interest is charged against loan offered by commercial bank to central bank.
5.
Impact of high or low interest rate
If the rate of interest is high then the quantity of lending the money is reduces. Clients of the bank have to pay more interest on loan amount. If the rate of interest is low then more people are willing to borrow funds from bank and it will increase the money supply in an economy.
If rate is high then the there is less money supply in an economy.
High interest rate motivates the bank to deposit more money or lend money to central bank. If interest rate is low
6.
Bank rate, Repo rate and reverse known as
It is also known as Discounting rate
It is also known as Repurchasing rate
It is known as Reverse repo rate
7.
Loan or Securities
It is charged against loan amount.
It is charged against selling the securities.
It is charged against depositing the amount in central bank or lending money to central bank.


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