Lynette answers my question: Why are rising repo rates bad?
Repossession rate is the rate at which the central bank of a country lends money to commercial banks in the event of any shortfall of funds. Repo rate is used by monetary authorities to control inflation. A rising repo rate acts as a disincentive for banks to borrow from the central bank. This ultimately reduces the money supply in the economy and thus helps in arresting inflation.
The repo rate shot up on 17 September 2019 because of shortfall of funds and liquidity. It shows that there is a cash shortage. Normally, the repo rate should follow the fed funds rate. If it doesn't, something is wrong. The Fed is about to do more QE to supply more cash into the markets. This spike in repo rates is the symptom of that.
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 (so that banks can
swap their holdings of government securities for cash). To contract the
money supply it increases the repo rates. Alternatively, the central
bank decides on a desired level of money supply and lets the market
determine the appropriate repo rate. Repo is short for repossession.
Read more: http://www.businessdictionary.com/definition/repo-rate.html
Read more: http://www.businessdictionary.com/definition/repo-rate.html
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 (so that banks can
swap their holdings of government securities for cash). To contract the
money supply it increases the repo rates. Alternatively, the central
bank decides on a desired level of money supply and lets the market
determine the appropriate repo rate. Repo is short for repossession.
Read more: http://www.businessdictionary.com/definition/repo-rate.html
Read more: http://www.businessdictionary.com/definition/repo-rate.html
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 (so that banks can
swap their holdings of government securities for cash). To contract the
money supply it increases the repo rates. Alternatively, the central
bank decides on a desired level of money supply and lets the market
determine the appropriate repo rate. Repo is short for repossession.
Read more: http://www.businessdictionary.com/definition/repo-rate.html
Read more: http://www.businessdictionary.com/definition/repo-rate.html
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