Economics • Banking & FinanceMedium
What is the primary objective of the Repo Rate maintained by the Reserve Bank of India?
A. To regulate long-term infrastructure lending rates for cooperative banks
B. To provide short-term liquidity to commercial banks against eligible securities✓ Correct Answer
C. To determine the minimum interest rate payable on savings bank accounts
D. To fix the foreign exchange conversion rate for international trade transactions
💡 Solution & Explanation
The repo rate is the interest rate at which the Reserve Bank of India lends short-term funds to commercial banks against government securities. It serves as a benchmark instrument for managing systemic liquidity and anchoring monetary policy stance. When inflation rises, the central bank increases the repo rate to make borrowing expensive and curb aggregate demand. Savings bank interest rates are deregulated, and foreign exchange rates are market-determined with central bank intervention.
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