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In the second bi-monthly review of monetary policy on Wednesday, RBI changed its status quo stance on these policy rates. The ruling repo-rate was increased by 25 basis points, i.e., from 6% to 6.25% and the reverse repo rate has reached a 6% benchmark. The reason cited by the RBI regarding the upward revision of repo-rate is the rise in inflation expectations in the first half (H1) of 2018 which had endangered the financial stability of the economy. World Bank report suggests that crude oil prices will rise to 20% this year, which could further deepen India's Current Account Deficit. The 25-basis-points rise in the repo-rate, in such a scenario, would result in a decline in net borrowing, ultimately de-motivating new borrowers from applying for loans or credit. Compare and discover the best credit card for you with additional perks and better rewards at mymoneykarma. A decline in the net borrowings would lead to lower levels of liquidity in the economy. An outrageously high repo-rate could depress the funds available in the banks, so, the interest rate on deposits is also increased by the commercial banks, to attract more depositors.
Repo-rate refers to the rate at which RBI lends money to the commercial banks, and the reverse repo rate is the rate at which the commercial banks lend money to RBI.
Trends in repo and reverse-repo rate have been reasonably stable over the last 4-5 years in India.