Repo Rate Calculation

Repo Rate (Repurchase Agreement) Calculator

Calculation Results:

Annualized Repo Rate: %

Implied Interest Cost:

Daily Interest Rate: %

function calculateRepoRate() { var spot = parseFloat(document.getElementById('spotValue').value); var repurchase = parseFloat(document.getElementById('repurchaseValue').value); var days = parseFloat(document.getElementById('tenureDays').value); var resultDiv = document.getElementById('repoResult'); if (isNaN(spot) || isNaN(repurchase) || isNaN(days) || spot <= 0 || days <= 0) { alert("Please enter valid positive numerical values for all fields."); return; } // Repo Rate Calculation Formula: // Rate = ((Repurchase Price – Sale Price) / Sale Price) * (365 / Days) * 100 var interestCost = repurchase – spot; var annualizedRate = (interestCost / spot) * (365 / days) * 100; var dailyRate = (interestCost / spot) / days * 100; document.getElementById('rateOutput').innerText = annualizedRate.toFixed(4); document.getElementById('interestOutput').innerText = interestCost.toLocaleString(undefined, {minimumFractionDigits: 2}); document.getElementById('dailyRateOutput').innerText = dailyRate.toFixed(6); resultDiv.style.display = 'block'; }

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Understanding Repo Rate and Repurchase Agreements

A Repurchase Agreement, commonly known as a Repo, is a form of short-term borrowing for dealers in government securities. In a repo transaction, one party sells securities to another party and agrees to repurchase them at a later date, usually at a slightly higher price.

How the Repo Rate is Calculated

The "Repo Rate" is the annualized interest rate implied by the difference between the initial sale price and the eventual repurchase price. It is not calculated like a standard bank loan; instead, it is derived from the price appreciation of the collateralized asset over a specific time horizon.

The mathematical formula used in our calculator is:

Annualized Repo Rate = [(Repurchase Price – Sale Price) / Sale Price] × (365 / Days in Tenure) × 100

Key Components of the Calculation

• Sale Price (Spot Value): The initial amount of cash the borrower receives in exchange for the securities.
• Repurchase Price: The amount the borrower must pay back to reclaim their securities. This includes the principal plus the "repo interest."
• Tenure (Term): The duration of the agreement, ranging from overnight (the most common) to several weeks.
• Interest Cost: The absolute difference between the repurchase price and the sale price.

Practical Example

Suppose a commercial bank needs short-term liquidity and enters into a repo agreement with the Central Bank:

1. Sale Price: 1,000,000 units.
2. Duration: 7 days.
3. Repurchase Price: 1,001,246 units.

In this scenario, the bank pays 1,246 units in interest for 7 days. Plugging these numbers into the formula:

((1,001,246 – 1,000,000) / 1,000,000) × (365 / 7) × 100 = 6.50% Annualized Repo Rate

Why the Repo Rate Matters

The Repo Rate is a critical tool for monetary policy. When Central Banks increase the repo rate, it becomes more expensive for commercial banks to borrow money, which effectively reduces the money supply in the economy and helps control inflation. Conversely, lowering the repo rate injects liquidity into the market, encouraging banks to lend more and stimulating economic growth.