What happens if repo or reverse repo rates increased?

Question

Accepted Answer

Increase in repo or reverse repo rates can lead to higher borrowing costs for banks, impacting liquidity and interest rates in the economy.

Higher repo or reverse repo rates can lead to increased borrowing costs for banks, as they have to pay more interest on funds borrowed from the central bank.
This can result in a decrease in liquidity in the banking system, as banks may be less willing to lend to each other or to customers.
Higher repo rates can also lead to an increase in interest rates in the economy, making borrowing more expensive for businesses and individuals.
On the other hand, an increase in reverse repo rates can incentivize banks to park more funds with the central bank, reducing the amount of money available for lending.
Overall, an increase in repo or reverse repo rates can have a tightening effect on the economy, potentially slowing down economic growth.

Top Federal Bank Assistant Manager interview questions & answers