Explain the concept of ‘Repo Rate’ in banking. | raises.

Question
  • A. The rate at which banks lend to each other
  • B. The rate at which the RBI lends to the government
  • C. The rate at which the RBI lends money to commercial banks against government securities
  • D. The interest rate on savings accounts
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correct Answer ( C )

The Repo Rate is the rate at which the reserve Bank of India (RBI) lends money to commercial banks against the security of government securities. Essentially, it is a short-term lending mechanism : when the RBI wants to increase the money supply in the economy it lowers the Repo Rate, making it cheaper for banks to borrow, thus encouraging lending and boosting economic activity . Conversely, when inflation is high, the RBI raises the Repo Rate, making borrowing more expensive, thus reducing the money supply and curb

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2025-03-24T19:40:48+00:00 1 views