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Consider the following statements regarding Repo rate : 1. It is the rate at which RBI lends money to Commercial Banks generally against Government Securities 2. It is the rate at which RBI borrows money from Commercial Banks generally against Government Securities  3. It is the rate at which Commercial Banks keep Deposits with RBI  Which of the above statements is/are correct? 

Consider the following statements regarding Repo rate : 1. It is the rate at which RBI lends money to Commercial Banks generally against Government Securities 2. It is the rate at which RBI borrows money from Commercial Banks generally against Government Securities  3. It is the rate at which Commercial Banks keep Deposits with RBI  Which of the above statements is/are correct?  Correct Answer 1 only

The correct answer is 1 only.

Repo Rate is the rate at which RBI lends money to Commercial Banks generally against Government Securities.

  • Repo in repo rate stands means Repurchasing Option.
  • Commercial Banks borrow money from the Reserve Bank of India at some rate which is called Repo Rate.
  • Repo rate is applicable to short term borrowings, for example for 7 or 14 or 28 days.
  • Another related term is Reverse Repo Rate, which is the rate provided by RBI when commercial banks keep their surplus with it.
  • Repo Rate as a tool used in Monetary policy:
    • RBI keeps on regulating Repo rate as a part of its monetary policy.
    • Easy/ Cheap money policy (lower repo rate):
      • Banks borrow money from RBI at lower rates and hence the banks can also lend money to their borrowers at cheaper rates.
      • Money is available to spend at lower rates.
      • Increases the liquidity in the market.
      • It controls deflation and also boosts the purchasing power of consumers.
    • Tight/ Dear money policy (higher repo rate):
      • Banks borrow money from RBI at higher rates and hence the people have to borrow the money from banks at higher rates.
      • People refrain from borrowing money from banks.
      • Decreases the liquidity in market controls inflation.

Related Questions

Examine the following statements: A. Repo rate is the rate at which the Reserve Bank of India borrows money from commercial banks within India. B. Reverse repo rate is the rate at which the RBI lends money to commercial banks in the event of any shortfall of funds. C. The RBI increased the repo-rate and reverse repo rate by 25 basis points to 6.5% and 6.25%, respectively on August 1, 2018 Choose the correct answer:
Which of the following statements are true in context of scheduled banks?
1. All banks which are included in the Second Schedule to the Reserve Bank of India Act, 1934 are Scheduled Banks.
2. These banks comprise Scheduled Commercial Banks and Scheduled Co-operative Banks.
3. Scheduled Commercial Banks in India are categorized into five different groups - SBI, Nationalised Banks, Regional Rural Banks, Foreign Banks and Other Indian Scheduled Commercial Banks in the private sector.
4. Scheduled Co-operative Banks consist of Scheduled State Co-operative Banks and Scheduled Urban Co-operative Banks.
The Reserve Bank of India (RBI) acts as a banker’s bank. This would imply which of the following ? 1. Other banks retain their deposits with RBI 2. The RBI lends funds to the commercial banks in times of need 3. The RBI advises commercial banks on monetary matters Select the correct answer using the code given below : 
The Reserve Bank of India (RBI) acts as a bankers' bank. This would imply which of the following? 1. Other banks retain their deposits with the RBI. 2. The RBI lends funds to commercial banks in times of need. 3. The RBI advises commercial banks on monetary matters. Select the correct answer using the codes given below:
Match the items of List I with the items of List II and choose the correct answer from the code given below.   List I    List II (a)  NPA (i)  The percentage of deposits to be kept with RBI  in the form of cash. (b)  SLR (ii)  The rate at which RBI lends money to   commercial banks.  (c)  Repo Rate   (iii)  Loans and advances not paid for more than   90 days (d)  CRR (iv)  The percentage of net demand and time   liabilities to be kept in the form of liquid assets.
A money lender borrows money at 4% per annum and pays the interest at the end of the year. He lends it at 6% per annum compound interest compounded half yearly and receives the interest at the end of the year. In this way, he gains Rs. 104.50, a year. The amount of money be borrows, is ?
In the Money market which of the following statement's is/are incorrect?
1. The call money market deals in short-term finance repayable on demand, with a maturity period varying from one day to 14 days.
2. Treasury bills are instruments of short-term borrowing by the Government of India, issued as promissory notes under discount.
3. A reduction in the repo rate helps banks to get money at a cheaper rate.
4. Money market mutual funds invest money in specifically, high-quality and very short maturity based money market instruments.
In the question below, a passage is given followed by three courses of actions numbered I, II and III. On the basis of the information given, you have to assume everything in the statement to be true, and then decide which of the following suggested courses of actions logically follow(s) for pursuing. Passage: India's retail inflation jumped from 6.09% in June to 6.93% in July as per the National Statistical Office (NSO) data released on August 13, 2020. The rise is fuelled mainly due to the surge in food prices, which soared by 10%. RBI, in its MPC meeting last week, had kept the repo rate unchanged with an accommodative policy stance. Courses of action: I. RBI must hike the repo rate in the upcoming MPC. II. The government must stop payments to farmers under PM-KISAN yojana as the hike in Food Prices will give them more remunerative prices. III. All citizens should start cultivating food on their own to counter food inflation.
Consider the following statements: 1. Money supply is a flow variable and is measured for a certain period. 2. Interbank deposits, which one commercial bank deposits in another bank, are not included in the money supply. 3. M1 and M2 are called broad money and re-least liquid of all. Which of the above statements is/are correct?
Consider the following Statements:  I. Bank rate is the rate of interest which RBI charges its clients on their short-term borrowing. II. Repo rate is the rate of interest which RBI charges its clients on their long-term borrowing. Which of the statements given above is/are correct?