Repo rate or repurchase rate is that the rate at that banks borrow money from the financial organization (read RBI for India) for short amount by merchandising their securities (financial assets) to the financial organization with associate agreement to repurchase it at a future date at predetermined price. it is just like borrowing money from a money-lender by merchandising him one thing, and later shopping for it back at a per-fixed price.
This is the speed at that RBI lends money to other banks (or financial institutions)
The discount rate signals the central bank's semi-permanent outlook on interest rates. If the discount rate moves up, semi-permanent interest rates conjointly tend to move up, and vice-versa.
Banks create a profit by borrowing at a lower rate and disposition identical funds at the next rate of interest. If the RBI hikes the discount rate, the interest that a bank pays for borrowing money (banks borrow money either from one another or from the RBI) will increase. It, in turn, hikes its own disposition rates to confirm it continues to make a profit.