Reverse Repo Rate: It is reverse repurchase option rate. It is the rate at which Central Bank of a country borrows money from the commercial banks in exchange for government securities, with the promise to sell them back at the later date.
Central Bank uses it to control credit created by commercial banks in following manner: The Reverse Repo Rate is used by Central Bank as an instrument of credit control. It helps to control the money supply in the economy. When the Central Bank increases the Reverse Repo Rate it makes it more attractive for commercial banks to lend their excess funds to the Central Bank, rather than lending to customers. This reduces the amount of money in circulation in the economy thus helps to control inflation.