Difference Between Bank Rate and Repo Rate

银行利率和回购利率

There are financial instruments in the hands of apex or central banks of the nations to control money supply and thus, inflation and many other monetary situations in the economy. Bank rate is one such tool that controls the amount of money in the economy and is regularly used by the central banks of all countries. Here it can be argued that when there is a government in place, why such powers have been relegated to central banks? Well, the answer is that populist governments cannot take harsh measures as their popularity goes down, which is why there are economic measures taken on their behalf by central banks such as Federal Reserve in US and RBI in India. There is another rate called repo rate which has similar effect on the economy and confuses common people as they cannot find differences between bank rate and repo rate. This article tries to highlight the features of both these instruments to elucidate their differences.

There are times when commercial banks have shortage of funds, and look up to the central bank of the country to fulfill this shortage. The apex bank charges a rate of interest when extending loans to commercial banks, which is known as bank rate. It is within the jurisdiction of apex bank (reserve bank) to increase or decrease this bank rate. The effect of increasing this rate can be seen on money supply in the economy, which goes down as banks are reluctant to ask for money at a higher bank rate from the reserve bank. On the other hand, when the bank rate is decreased, it makes available funds at low rates of interest to the banks that are extended forward by commercial banks to common people, either industrialists or agriculturists, thus helping in increasing economic activities and thus, GDP of the country.

回购利率也称为回购利率是银行从印度央行借钱的利率。通常，商业银行对资金的需求增长了比他们手头的资金更多，这是他们需要储备银行的资金的时候。它在储备银行，如何看待该国经济状况。如果银行应该以较低的利率向普通百姓提供贷款以阻止通货膨胀措施，则它会降低回购利率，从而促使银行从中借更多的钱并将这一收益转移给普通客户。

It is clear that whether reserve bank increases bank rate or the repo rate, the net result on the economy is that liquidity goes down and inflation is controlled. So, how does the apex bank decide which rate to increase or decrease? Well, the answer to this question lies in the nature of the two rates. Bank rate is always a long term measure, whereas repo rate is short term measure to fulfill the shortage of funds of commercial banks.

What is the difference between Bank Rate and Repo Rate? • Both bank rate and repo rate are financial instruments in the hands of the apex bank of a country to control money supply in the economy • While bank rate is the rate of interest at which central bank grants long term loans to commercial banks, repo rate is the rate of interest at which banks can get short term loans to meet shortfall of funds in their operations.