Reserve Bank of India

Repo Rate is the interest rate at which the RBI lends money to commercial banks for short periods. Banks provide government securities as collateral. Reverse Repo Rate is the rate at which the RBI borrows money from banks. A higher Repo Rate makes loans costlier for the public. A higher Reverse Repo Rate encourages banks to park more money with the RBI instead of lending it to the public. These tools help regulate the total money supply in the market.

This is a critical function where the RBI saves the banking system from collapsing. When a commercial bank faces a liquidity crisis and cannot get money from anywhere else, it approaches the RBI. The RBI provides emergency funds to protect the interests of the depositors. This ensures that people do not lose faith in the banking system. Example: If a bank has no cash to pay back its customers today, the RBI lends it money immediately.

The MPC is a six-member committee that decides the benchmark interest rates. It consists of three members from the RBI and three members appointed by the Central Government. The RBI Governor acts as the Chairperson. The main goal is to control inflation. They meet at least four times a year. Decisions are made by a majority vote. In case of a tie, the Governor has a 'casting vote' to break the tie. Example: If the MPC increases the Repo Rate, your home loan EMI might go up.