What does 'repo rate' refer to in India's monetary policy?
Show answer & explanation
Correct answer: D
Explanation
Answer: Rate at which commercial banks borrow from the RBI
Explanation
The repo rate is a key instrument of India’s monetary policy managed by the Reserve Bank of India.
It is the interest rate at which commercial banks borrow money from the RBI
Banks borrow by selling government securities to the RBI with an agreement to repurchase them later
Additional Key Points
Repo = Repurchase Agreement
Higher repo rate → loans become expensive → inflation reduces
Lower repo rate → loans become cheaper → economic growth increases
Used as a tool to control: Inflation , Liquidity in the economy and Economic growth
Opposite concept: Reverse Repo Rate (RBI borrows from banks)
Potential Questions & Answers
Q. What happens when repo rate increases?
Ans: Borrowing becomes expensive and inflation reduces
Q. What is reverse repo rate?
Ans: Rate at which RBI borrows money from commercial banks
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