Q. Consider the following statements about Repo Rate:
1. It is the interest rate at which the RBI lends long-term funds to commercial banks.
2. It serves as a primary tool for the RBI to regulate imports into the country.
Which of the statements given above is/are correct?
Answer: D
Notes:
Explanation:
Statement 1 is incorrect: The repo rate is the interest rate at which the RBI lends short-term funds to commercial banks against government securities.
Statement 2 is incorrect: It serves as a primary tool for the RBI to regulate liquidity, control inflation, and influence overall economic activity. By adjusting the repo rate, RBI can either encourage banks to borrow more (by lowering the rate) or discourage borrowing (by raising the rate), thus influencing the money supply in the economy.
Source: CNBC
