WBCS.LIVE practice question

What is the 'Repo Rate' in the context of 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 customers
  2. Rate at which RBI lends to commercial banks
  3. Rate at which RBI borrows from banks
  4. Rate of inflation in the market

Correct answer and explanation

Correct answer: Rate at which RBI lends to commercial banks

Explanation: ✅ Correct Answer: B) Rate at which RBI lends to commercial banks 📚 Explanation: Repo Rate (Repurchase Option) is the interest rate at which the central bank (RBI) lends money to commercial banks in the event of any shortfall of funds. It is a powerful tool used by the RBI to control inflation and manage liquidity in the economy. Increasing the Repo Rate makes borrowing more expensive, which helps in reducing the money supply and cooling down inflation.