Repo rate

The RBI, I believe, had a contrary definition of the Repo rate, that is contrary to American, and general, usage.  They used to define a repo as a sale of securities (=absorption of reserves).  The Federal Reserve calls this operation a reverse repo.  To quote: “The Federal Reserve conducts reverse repurchase agreements (reverse repos) by selling Treasury securities and federal agency debt securities to counterparties who agree to sell the securities back to the Federal Reserve on a stated future date. In normal times, the Federal Reserve executes occasional reverse repos with primary dealers; these transactions temporarily reduce the supply of reserve balances and thus help bring the federal funds rate back up to the target set by the FOMC when it has fallen below that target.”

The RBI has since changed over to general usage, and now a repo is for injection of funds, and a reverse repo is for draining reserves.  The quote from RBI Functions and Working in the post “Bank rate, repo rate” below has been struck out accordingly.

“Note : With effect from October 29, 2004, nomenclature of Repo and Reverse Repo has been interchanged as per international usages. Till October 28, 2004, Repo
indicated absorption of liquidity whereas Reverse Repo meant injection of liquidity by the Reserve Bank.”


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