Repo vs Reverse Repo Rate: the difference, in plain terms
Repo and reverse repo are the two halves of the same window. In both, money moves between the RBI and commercial banks against government securities. The direction is what changes, and that single fact answers most of the questions asked on this pair.
| Repo Rate | Reverse Repo Rate | |
|---|---|---|
| Who lends | The RBI lends to banks | Banks lend to the RBI |
| Direction of money | Out of the RBI, into the system | Out of the system, into the RBI |
| What it does | Injects liquidity | Absorbs liquidity |
| Which is higher | Always higher | Always lower |
| Collateral | Government securities | Government securities |
| Purpose for the bank | Meets a short-term shortfall | Parks a surplus and earns on it |
🧠 REPO = the RBI gives. REVERSE = the reverse, banks give. And repo is always the higher of the two.
Points that get asked
- Both operate under the LAF, the Liquidity Adjustment Facility, the RBI's window for managing day-to-day liquidity.
- The repo rate is the policy rate. When news says the RBI 'raised rates', it means the repo rate.
- Raising the repo rate makes borrowing costlier for banks, which passes through to loan rates and cools inflation.
- Since April 2022 the SDF, the Standing Deposit Facility, replaced the reverse repo as the floor of the LAF corridor. The reverse repo still exists on paper but is no longer the operative floor, a detail newer papers have started testing.
- The repo rate is the ceiling's reference and the MSF, Marginal Standing Facility, sits above it. Order to remember: SDF < Repo < MSF.
Frequently asked
Which is higher, repo or reverse repo?
The repo rate is always higher. The RBI charges more to lend money than it pays to hold money, exactly as a bank would. If an option shows reverse repo above repo, it is wrong.
What is the difference between repo and reverse repo in one line?
In a repo the RBI lends to banks and money enters the system. In a reverse repo banks park surplus funds with the RBI and money leaves the system.
Has the SDF replaced the reverse repo rate?
Yes, as the operating floor. In April 2022 the RBI made the Standing Deposit Facility the floor of the LAF corridor. Unlike the reverse repo, the SDF does not require the RBI to give government securities as collateral.
Is the repo rate the same as the bank rate?
No. Both are RBI lending rates, but repo lending is short-term and against collateral, while the bank rate is longer-term lending without the sale-and-repurchase of securities. The bank rate is typically aligned with the MSF.
What happens when the RBI cuts the repo rate?
Borrowing becomes cheaper for banks, which usually lowers loan and deposit rates. It is used to encourage lending and support growth.
Last updated 2026-07-29