On March 20, 2013, RBI has lowered Repo Rate by 25 basis points from 7.75% to 7.50%. The objective is ease pressure on the reviving economy. Accordingly, the Reverse Repo Rate under the Liquidity Adjustment Facility (LAF), which is determined with a spread of 100 basis points below the repo rate, has got calibrated to 6.50%.
At the same time, the Marginal Standing Facility (MSF) rate, which is determined with a spread of 100 basis points above the repo rate is adjusted to 8.50%.
How Reverse Repo Rate Works?
When the RBI increases the Reverse Repo, it means that now the RBI will provide extra interest on the money which it borrows from the banks. An increase in reverse repo rate means that banks earn higher returns by lending to RBI. This indicates a hike in the deposit rates.