_____ is the interest rate at which the Reserve Bank absorbs liquidity from banks against the collateral of eligible government securities under the LAF.
Show answer & explanation
Correct answer: B
Explanation
The correct answer is option 2 i.e. Reverse Repo Rate.
The Reverse Repo Rate is the interest rate at which the Reserve Bank of India (RBI) absorbs liquidity from banks against the collateral of eligible government securities under the Liquidity Adjustment Facility (LAF). By offering this rate, the RBI encourages banks to deposit their surplus funds with it, thereby reducing the amount of money circulating in the economy. This tool helps the RBI manage liquidity and control inflation by influencing the short-term interest rates in the financial system.