Reverse Repo
a.k.a. RRP, Reverse repurchase agreement
The lender's side of a repo: you hand over cash, take bonds as collateral, and sell them back later at a…
In plain English
The lender's side of a repo: you hand over cash, take bonds as collateral, and sell them back later at a slightly higher price.
A reverse repo is a repo seen from the other side of the table. You lend cash and receive bonds as security; later you hand the bonds back and get your cash plus a little interest.
Central banks use reverse repos to drain cash from the system: they borrow from banks and funds, temporarily soaking up money. The US Fed's overnight reverse repo facility does this at enormous scale and helps set a floor for short-term rates.
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