Economics • Banking & FinanceEasy
What does 'Repo Rate' signify in the monetary operations of the Reserve Bank of India?
A. The interest rate charged by the central bank when it lends short-term funds to commercial banks against securities✓ Correct Answer
B. The rate at which commercial banks park their surplus liquidity with the central bank overnight
C. The minimum interest rate below which scheduled banks cannot lend to retail borrowers
D. The yield earned on long-term government bonds traded in secondary financial markets
💡 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 eligible government securities. Reverse repo rates govern the interest paid when banks park excess funds with the central bank. Base rate or marginal cost of funds lending rate structures determine minimum retail lending thresholds. Open market operations manage secondary market bond yields independently of daily repo interventions.
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