What is a Repo Rate?

Описание: Welcome to the Investors Trading Academy talking glossary of financial terms and events.
Our word of the day is “repo rate”
Repo is short for repossession meaning to take possession again at a later time. The repo rate is the discount rate at which a central bank repurchases government securities from the commercial banks, depending on the level of money supply it decides to maintain in the country's monetary system. To temporarily expand the money supply, the central bank decreases repo rates.
A repurchase agreement, also known as a repo, currency repo, RP, or sale and repurchase agreement, is the sale of securities together with an agreement for the seller to buy back the securities at a later date. The repurchase price should be greater than the original sale price, the difference effectively representing interest, sometimes called the repo rate. The party that originally buys the securities effectively acts as a lender. The original seller is effectively acting as a borrower, using their security as collateral for a secured cash loan at a fixed rate of interest.

By Barry Norman, Investors Trading academy