WBCS.LIVE practice question

What is the exact term used to describe the interest rate at which the RBI borrows funds from commercial banks?

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

Answer options

  1. Bank Rate
  2. Reverse Repo Rate
  3. Repo Rate
  4. Marginal Standing Facility

Correct answer and explanation

Correct answer: Reverse Repo Rate

Explanation: āœ… Correct Answer: B) Reverse Repo Rate šŸ“š Explanation: The Reverse Repo Rate is the specific interest rate at which the Reserve Bank of India absorbs excess liquidity from commercial banks by borrowing money from them against approved government securities. An increase in the Reverse Repo Rate heavily encourages commercial banks to park their excess funds with the RBI instead of lending them into the market.