Repo and Reverse Repo

Repo (Repurchase) rate is the rate at which the Central Bank of a country lends shot-term money to the banks against securities. When the repo rate increases borrowing from Central bank becomes more expensive.  Therefore, we can say that in case,  Central Bank wants to make it more expensive for the banks to borrow money, it increases the repo rate; similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate.

Reverse Repo rate is the rate at which banks park their short-term excess liquidity with the Central Bank.  The banks use this tool when they feel that they are stuck with excess funds and are not able to invest anywhere for reasonable returns.     An increase in the reverse repo rate  means that the Central Bank  is ready to borrow money from the banks at a higher rate  of interest. As a result, banks would prefer to keep more and more surplus funds with Central Bank.