What is the RBI repo rate?

Commercial banks approach RBI when they are experiencing financial trouble. The "Repo Rate" is the interest rate at which banks borrow money from the RBI by offering their assets and bonds for sale. In other words, it is just the rate at which the Indian central bank lends money to commercial banks who are in financial difficulty and unable to pay their expenses. In this instance, both parties sign a buyback agreement stating that the assets will be repurchased at a given price on a given date.

As an illustration, if a bank borrows Rs 10,000 from the RBI at the repo rate of 10% per annum, the bank will be required to pay the RBI Rs 1,000 in interest. India's central bank, the Reserve Bank of India, sets and keeps an eye on the repo rate. For short-term financial crises, it works well. It is one of the effective methods the central bank uses to manage the country's economic liquidity level, supply of money & inflation.