Economics • Banking & FinanceEasy
What is 'Repo Rate' in the monetary policy framework of the Reserve Bank of India?
A. The interest rate at which the RBI lends short-term funds to commercial banks against eligible collateral.✓ Correct Answer
B. The rate at which commercial banks pay interest on long-term government bonds.
C. The interest rate charged by commercial banks to their prime corporate borrowers.
D. The rate at which the central bank borrows foreign currencies from international financial institutions.
💡 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 the collateral of government securities. Adjusting this rate helps the central bank manage money supply and inflation within the economy. Conversely, the reverse repo rate is the interest paid by RBI to banks for parking excess funds.
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