Repurchase Agreement In India

However, for the time being, repo operations remain an important means of facilitating short-term borrowing: when public central banks buy securities from private banks, they do so at a reduced rate called “repo”. Like policy rates, repo rates are set by central banks. The repo interest rate system allows governments to control the money supply within economies by increasing or reducing available resources. A cut in repo rates encourages banks to sell securities for cash to the government. This increases the money supply available to the general economy. Conversely, by raising repo rates, central banks can effectively reduce the money supply by preventing banks from reselling these securities. Like many other corners of finance, pensions include terminology that is not common elsewhere.