What is the Difference Between Bank Rate and Repo Rate?
🆚 Go to Comparative Table 🆚The main difference between the bank rate and the repo rate lies in the collateral requirement and their respective purposes. Here are the key differences between the two:
- Collateral: The repo rate requires collateral, such as bonds or securities, while the bank rate does not require any collateral.
- Purpose: The repo rate is a short-term rate used for controlling liquidity in the market, while the bank rate serves long-term needs and requirements.
- Security: When charging a bank rate, no security is offered, whereas when setting a repo rate, protections, security, arrangements, and guarantees are included.
- Interest Rates: The repo rate is generally higher than the bank rate.
In summary, the bank rate is the rate at which central banks lend to commercial banks without collateral, serving long-term needs. On the other hand, the repo rate is a short-term lending rate that requires collateral and is used to control liquidity in the market.
On this pageWhat is the Difference Between Bank Rate and Repo Rate? Comparative Table: Bank Rate vs Repo Rate
Comparative Table: Bank Rate vs Repo Rate
Here is a table highlighting the differences between the bank rate and repo rate:
Feature | Bank Rate | Repo Rate |
---|---|---|
Meaning | The rate at which the central bank lends to commercial banks. | The rate at which the central bank lends to commercial banks by purchasing securities. |
Charged on | Loans and advances to commercial banks. | Repurchase of securities. |
Collateral | No collateral required. | Collateral such as government securities or bond papers required. |
Tenure | Up to 28 days. | One-day time frame. |
Interest Rate | Higher than the repo rate by a few basis points. | Lower than the bank rate. |
Objective | Long-term lending rates and requirements of banks. | Liquidity management and controlling cash flow in the market. |
Both the bank rate and repo rate are tools used by the central bank to manage the money supply and inflation in an economy.
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