It stands for overnight reverse repurchase rate (overnight RRP); an overnight interest rate that is set by a central bank, at which to borrow money from non-bank entities (for the shortest facility periods: overnight deposits), in the specific cases where other rates are used for deposits made by bank entities. A central bank sets the overnight reverse repurchase rate (as a key policy rate), at which it may also borrow money from banks to maintain price stability in a country. This, consequently, impacts the country’s money supply as it shifts money (excess reserves) from banks into the central bank.
Non-banks with surpluses to lend have no incentive to lend their excess funds (to a central bank or other entities) at a rate below the overnight reverse repurchase (ONRRP) rate, effectively setting a floor under short-term rates for the entire market.
Comments