(i) Repo rate is the rate of interest at central bank lends money to commercial banks for a short-term. The Central Bank fixes the Repo Rate and it plays the role of an indicator of lending rate and deposit rate fixation by the banks. Under inflationary conditions, Central Bank increases the Repo Rate.
(ii) marginal requirement refers to the difference between market value of the security offered for loans and the amount of loans offered by the Commercial Banks. The Central Bank fixes the margin requirements and under deflationary conditions Central Bank reduces the margin requirements.
