Why is the reverse repo rate lower than the repo rate?

Repo Rate:

The repo rate can also be called the repurchase rate, is the key monetary policy interest rate. The central bank and Reserve Bank of India (RBI) provide short-term loans to banks to control credit availability, inflation, and economic growth.

Reverse repo rate:

The reverse repo rate is defined as the interest rate at which the central bank (in India, the RBI) borrows money from commercial banks for a short period.

Repo rate vs. reverse repo rate

The primary distinctions between reverse repo rate and repo rate are as follows:

• Banks deposit excess cash with the RBI and earn interest on them under the Reverse Repo Rate.

• The Repo Rate is when RBI lends money to the banks for the short term, and in the inverse situation, it is Reverse Repo Rate.

Comparison	Repo rate	Reverse repo rate
The Borrower's Goal	To deal with a short-term cash to deal with a short-term cash shortage	To diminish the total amount of money in the economy
Interest rate	More than the reverse repo rate	Less than the repo rate
The Effect of a Higher Rate	Commercial banks' funding costs rise, making loans more expensive.	The economy's money supply shrinks when commercial banks deposit more surplus funds with the RBI.
Effects of a Lower Interest Rate	Commercial banks' cost of funding is lower, resulting in lower lending interest rates.	Commercial banks' cost of funding is lower, resulting in lower lending interest rates.

The repo rate is the key monetary policy interest rate at which the central bank, or RBI, lends money to banks quickly. The Repo Rate is the inverse of the reverse repo rate, which pays interest on surplus cash held by the RBI.