The rate that is used in a reverse repo transaction. It is rate at which the central bank borrows money from market players, such as commercial banks within its jurisdiction. An increase in this rate means that the central bank is increasing the incentives for commercial banks to invest their surplus funds with the central bank, thereby decreasing the money supply in the market. On the other hand, a decreasing rate implies that these banks get lower incentives to deposit their funds with the central bank, thereby increasing the money supply in the market.

By nature, a reverse repo is a short-term agreement to buy securities at a specific price and sell them back at a slightly higher price, with the difference being the reverse repo rate. Typically, repos and reverse repos are short-term borrowing and lending arrangements, for overnight intervals.