Repo rates and reverse repo rates

Repo rate is the rate at which the central bank lends money to the other banks.

The reverse repo rate is the rate at which the other banks park their excess funds with the central bank. The reverse repo rate is always lower than the repo rate and is generally equal to the lending rate between banks (excluding the central bank)

The word repo represents the collateral that is given by banks to the central bank for borrowing money. On repayment of the borrowing the banks repossess their collateral given to the central bank, hence the word repo rate.

What is the effect of an increase/decrease in the repo rate?

An increase in the repo rate reduces the money supply in the system whereas a decrease in the repo rate infuses money into the system