Question

The RBI is regularly revising upwards the repo & reverse repo rates. Why is this being resorted to?

• A. To make bank loan costlier
• B. To encourage rise in interest rates on deposits
• C. To curb growth of black money
• D. To check inflationary pressures in the economy

Answer 1

The correct option is D

To check inflationary pressures in the economy

If the RBI wants to make it more expensive for banks to borrow money, it increases the repo rate. Similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate. Repo and reverse repo rates are used by the RBI to keep a check on inflation in the economy.