Repo Rate, Reverse Repo Rate, CRR, Call Rate

Repo rate is the rate at which banks borrow money from RBI. Increase in the repo rate makes borrowing more expensive for the banks

CRR or Cash Reserve Ratio is the amount of money banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down.

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As per RBI rules, certain percentage of deposits with the bank has to be kept as cash with RBI. This ratio (what part of the total deposits is to be held as cash) is stipulated by the RBI and is known as the CRR, the cash reserve ratio. When a bank’s deposits increase by Rs100, and if the cash reserve ratio is 10, banks will hold Rs10 with the RBI and lend Rs 90. The higher this ratio, the lower is the amount that banks can lend out. This makes the CRR an instrument in the hands of a central bank through which it can control the amount by which banks lend.

Reverse Repo Rate is the rate at which banks park their excess liquidity with RBI.

Obviously the reverse repo rate will be less than the repo rate.

Call Rate is also called the overnight rate. This is the rate at which a depository institution (bank) lends money to another depository institution overnight. This rate is a very good indicator of the short term lending rates.

In countries that have central banks, like India, it is the rate at which RBI lends money to banks overnight.