How Does Repo Rate Work!

The Repo Rate is a key tool used by central banks, like the Reserve Bank of India (RBI), to control the money supply in the economy. The term "Repo" stands for Repurchase Agreement. In simple terms, it’s the interest rate at which commercial banks borrow money from the central bank.
When banks need funds, they can borrow money from the central bank by offering government securities as collateral. The rate at which they borrow this money is called the repo rate. If the repo rate is high, borrowing becomes expensive for banks, and they may lend less to businesses and consumers. Conversely, if the repo rate is low, borrowing is cheaper, which encourages banks to lend more.more