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Reverse Repo Rate

Reverse Repo Rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) borrows money from commercial banks (like SBI, AXIS bank, etc) within the country. Let’s suppose hypothetically, RBI took money from SBI @6%. It is usually done to control MONEY SUPPLY IN AN ECONOMY. WELL, IT SIMPLY MEANS PEOPLE WILL SPEND LESS MONEY, WON’T TAKE LOAN OFTEN OR WON’T BE ABLE TO. IMPACT ON STOCK MARKET Increment in Reverse Repo Rate is not a good sign for the Stock market, as people will spend less, hence the sales & profitability of companies will decline. Just the opposite of that means a decline in Reverse Repo Rate is a good sign for the stock market, as people will use more credit cards, take loans often thus, increasing the sales & profitability of companies. Let’s suppose hypothetically RBI had asked for a loan from SBI of 1000 crores and SBi had only 1500 crores with itself. So, SBI will be having 500 crores only, and to take the most benefit of it, SBI will provide loans at higher rates ( let’s say SBI was providing loan @10% when having a balance of 1500 crores but now at 500 crores balance providing loan @12%). So, will take less loan and effecting sales and profitability of companies and the stock market. (BUT it’s not a necessity that stock market will go down and down only just after the news because Stock Market doesn’t run on Automation, it is run by Human Beings and smart money, which can make Market go high by providing Demand or can make Market go down by providing Supply.)

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