Question

Which of the following is not correct regarding the Reverse Repo Rate?

• A. It is the rate at which commercial banks borrow money from Reserve Bank of India
• B. It is a monetary policy instrument
• C. An increase in the reverse repo rate will decrease the money supply
• D. It is a monetary policy instrument and an increase in the reverse repo rate will decrease the money supply
• E. None of these

Answer 1

The correct option is A It is the rate at which commercial banks borrow money from Reserve Bank of India

Reverse repo rate is the rate at which the central bank of a country (RBI in case of India) borrows money from commercial banks within the country. It is a monetary policy instrument which can be used to control the money supply in the country. An increase in the reverse repo rate will decrease the money supply and vice – versa.