Q. Consider the following statements regarding the RBI’s repo rate:
1.An increase in the repo rate makes borrowing costlier for commercial banks, thereby reducing money supply in the economy.
2.The reverse repo rate is the rate at which commercial banks borrow funds from the RBI to meet short-term liquidity needs.
Which of the statements given above is/are correct?
Answer: A
Notes:
Explanation:
- Statement 1 is correct: A higher repo rate discourages bank borrowing, reducing liquidity.
- Statement 2 is incorrect: Reverse repo rate is the rate at which RBI borrows from commercial banks, not the other way around.
Source- TOI
