WBCS.LIVE practice question

What does the term 'Repo Rate' signify in the Indian Economy?

Solve this multiple-choice question and check the correct answer with its explanation below.

Answer options

  1. Rate at which banks lend to the public.
  2. Rate at which RBI lends to commercial banks for short term.
  3. Rate at which RBI borrows from commercial banks.
  4. Rate of interest on savings accounts.

Correct answer and explanation

Correct answer: Rate at which RBI lends to commercial banks for short term.

Explanation: āœ… Correct Answer: B) Rate at which RBI lends to commercial banks for short term. šŸ“š Explanation: Repo Rate is the key policy rate used by the RBI to control inflation and liquidity in the economy. When the RBI increases the Repo Rate, borrowing becomes expensive for banks, leading to a reduction in the money supply. Conversely, a decrease in the rate encourages banks to borrow more and lend to consumers.