With reference to the monetary policy instruments used by the Reserve Bank of India (RBI), consider the following statements: 1. Bank Rate is the interest rate at which RBI lends to commercial banks and other institutions for the long term. 2. Repo Rate is the interest rate RBI pays to banks when it borrows short-term funds from them. 3. Reverse Repo Rate is used by financial institutions to park their short-term surplus funds with RBI and earn interest. Which of the statements given above is/are correct? |ForumIAS

[A] 1 and 2 only

[B] 1 and 3 only

[C] 2 and 3 only

[D] 1, 2 and 3

Answer: B

Notes:

Explanation:

Bank Rate is the long-term lending rate of the RBI to banks and financial institutions like state governments, NBFCs, etc. It impacts long-term lending costs.
Repo Rate is the rate charged by RBI when banks borrow short-term funds from RBI. It is not the rate paid to banks.
Reverse Repo Rate is the rate RBI pays when banks and financial institutions park their surplus funds with it for the short term. It helps absorb excess liquidity.

Source- 11th NCERT: Economics: Indian Economic Development and TMH Indian Economy by Ramesh Singh

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