RBI Issue credit policy from time to time in order to check inflation problem of the country and to control liquidity position of the country. The credit policy basicaly includes repo rate , reverse repo rate , C.R.R.
Now we like to understand what we mean by repo rate ? Repo rate is the rate of ineterest at which R.B.I (Banker's bank) lend money to the bank. (If Any bank wants funds from the central bank (RBI) the rate of interest payable by him on the funds borrowed is repo rate)
Reverse repo rate as the word depicts it's meaning itself that it is reverse of the repo rate so if a bank wishes to deposit the excess fund with the bank to the central bank the rate of interest receiveable on the funds deposited is called reverse repo rate.
C.R.R refers to central reserve ratio refers to the total percentage of the reserve of the bank of the depositors fund. The total fund lying with the bank anytime of there depositors a part of it is to be depositied with the RBI in order to protect the interest of the depositors in case of liquidation or bankruptcy.
In order to control the flow of the money in the market to check inflation Reserve bank used ti hike C.R.R (To Increase the deposit percentage pulling awaay the cash from bank), Repo Rate hike will lead to hike in bank loan lending rates(P.L.R i.r prime lending rate) thereby reducing numbers of loan borrowers from the bank and reverse repo rate hike will attract people towards savings as higher deposit rate will fetch them good return.