Economics • Banking & FinanceEasy
What is the primary function of the 'Repo Rate' managed by the Reserve Bank of India?
A. The interest rate charged by commercial banks on long-term mortgage loans✓ Correct Answer
B. The rate at which the central bank lends short-term funds to commercial banks against government securities
C. The mandatory proportion of deposits that banks must keep with themselves in liquid form
D. The return paid by commercial banks on savings account deposits held by retail customers
💡 Solution & Explanation
The repo rate is the benchmark interest rate at which the Reserve Bank of India provides short-term liquidity to commercial banks and financial institutions against collateral such as government securities. Changes in the repo rate influence overall borrowing costs across the economy to manage inflation and credit growth. Other options refer to distinct concepts like the statutory liquidity ratio, retail deposit rates, or long-term mortgage pricing. It is a key instrument of the monetary policy framework.
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