Author
Home > Business > What is the Difference Between Bank Rate and Repo Rate?

Guilherme Mazui

•2 minutes to read

What is the Difference Between Bank Rate and Repo Rate?

🆚 Go to Comparative Table 🆚

The main difference between the bank rate and the repo rate lies in the collateral requirement and their respective purposes. Here are the key differences between the two:

  1. Collateral: The repo rate requires collateral, such as bonds or securities, while the bank rate does not require any collateral.
  2. Purpose: The repo rate is a short-term rate used for controlling liquidity in the market, while the bank rate serves long-term needs and requirements.
  3. Security: When charging a bank rate, no security is offered, whereas when setting a repo rate, protections, security, arrangements, and guarantees are included.
  4. Interest Rates: The repo rate is generally higher than the bank rate.

In summary, the bank rate is the rate at which central banks lend to commercial banks without collateral, serving long-term needs. On the other hand, the repo rate is a short-term lending rate that requires collateral and is used to control liquidity in the market.

On this page
  • What is the Difference Between Bank Rate and Repo Rate?
  • Comparative Table: Bank Rate vs Repo Rate

    • Comparative Table: Bank Rate vs Repo Rate

    Here is a table highlighting the differences between the bank rate and repo rate:

    Feature Bank Rate Repo Rate
    Meaning The rate at which the central bank lends to commercial banks. The rate at which the central bank lends to commercial banks by purchasing securities.
    Charged on Loans and advances to commercial banks. Repurchase of securities.
    Collateral No collateral required. Collateral such as government securities or bond papers required.
    Tenure Up to 28 days. One-day time frame.
    Interest Rate Higher than the repo rate by a few basis points. Lower than the bank rate.
    Objective Long-term lending rates and requirements of banks. Liquidity management and controlling cash flow in the market.

    Both the bank rate and repo rate are tools used by the central bank to manage the money supply and inflation in an economy.

    Read more:

    Guilherme Mazui

    Guilherme Mazui is graduated in journalism from the Federal University of Minas Gerais (UFMG) and a master's degree in Communication from the University of São Paulo (USP). In addition, he has experience in advertising writing and has worked as a content editor in several companies.