Multiple choice

What is the definition of repo rate in the banking sector?

  1. The rate at which the central bank of a country lends money to commercial banks in the event of any shortfall of funds

  2. The amount of funds that the banks have to keep with the central bank

  3. The rate at which the central bank borrows money from commercial banks

  4. The amount that the commercial banks are required to maintain in the form of gold or govt. approved securities before providing credit to the customers
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A Correct answer
Explanation

Repo rate (repurchase rate) is the rate at which the central bank (RBI in India) lends money to commercial banks against government securities. It is a key monetary policy tool used to control inflation and liquidity. When banks need funds for short-term requirements, they borrow from the central bank at this rate by selling securities with an agreement to repurchase them at a predetermined price and date.

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