• Bank Rate vs Repo Rate

    The Repo rate and Bank rate are almost similar except the difference that Repo rate is applicable to short-term lending specially for overnight lending to banks by the central bank and governed by the short term interest rate and inflation target but Bank rate is applicable to long term lending by the central bank and governed by the long term interest rate and inflation target.

    Both are used in the same manner to control the liquidity in the market and control inflation. But Bank rate mainly aims for long term effect and Repo rate mainly aims for short term effect.

    Like China’s Central Bank uses its one year deposit and lending rate to control liquidity and inflation. This is same as Bank rate. While India uses the overnight lending and deposit rate to control liquidity and inflation. This is same as repo rate (for lending) and reverse repo rate (for deposit).

    Post Tagged with ,

Leave a Reply

Your email address will not be published. Required fields are marked *