Economics • Banking & FinanceEasy
Which of the following best defines 'Repo Rate' in the monetary policy operations of the Reserve Bank of India?
A. The interest rate at which commercial banks borrow short-term funds from the RBI by providing eligible collateral.✓ Correct Answer
B. The rate at which the central bank pays interest to commercial banks on their excess overnight deposits.
C. The minimum interest rate below which banks are not permitted to lend to retail customers.
D. The rate charged by commercial banks for long-term infrastructure project financing.
💡 Solution & Explanation
The repo rate is the benchmark interest rate at which the Reserve Bank of India provides short-term liquidity to commercial banks against government securities. It differs from the reverse repo rate, which is used to absorb liquidity from the banking system.
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