Question

Banks borrow money from the RBI on which of the following rates?

• A. Reverse Repo Rate
• B. Repo Rate
• C. SLR
• D. CRR

Answer 1

The correct option is B Repo Rate

Repo Rate and Reverse Repo Rate: Repo Rate is the rate at which RBI lends to commercial banks generally against government securities.
Reduction in repo rate helps the commercial banks to get money at a cheaper rate and an increase in repo rate discourages the commercial banks to get money as the rate increases and becomes expensive. Reverse Repo Rate is the rate at which RBI borrows money from commercial banks.
The increase in the Repo Rate increase will increase the cost of borrowing and lending of the banks which will discourage the public to borrow money and will encourage them to deposit.
As the rates are high the availability of credit and demand decreases resulting in a decrease in inflation. This increase in repo rate and reverse repo rate is a symbol of the tightening of the policy.