Economics • Banking & FinanceMedium
What is the primary function of the 'Repo Rate' in the monetary framework managed by the Reserve Bank of India?
A. The interest rate at which commercial banks borrow short-term funds from the central bank by pledging eligible government securities✓ Correct Answer
B. The interest rate paid by commercial banks to depositors maintaining savings accounts
C. The benchmark yield earned by retail investors purchasing sovereign gold bonds
D. The penalty rate charged by the government for delayed payment of corporate income taxes
💡 Solution & Explanation
The Repo Rate, or repurchase rate, is the benchmark interest rate at which the Reserve Bank of India provides short-term liquidity to scheduled commercial banks against collateralized government securities. Reverse repo rate represents the interest rate paid by the central bank when commercial banks park their excess liquidity with it. Savings account interest rates are determined independently by individual banks based on market conditions. Sovereign gold bond yields are fixed separately by the central government.
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