Question
Which statement regarding the repo rate is INCORRECT?
Solution
The repo rate is the rate at which the Reserve Bank of India (RBI) lends money to commercial banks against securities as collateral, not the rate at which banks place funds with the RBI. The reverse repo rate, conversely, is the rate at which the RBI borrows money from commercial banks. As of December 2024, the repo rate stands at 6.50%, while the reverse repo rate is 3.35%. The repo rate serves as a key monetary policy tool for controlling inflation and managing liquidity in the economy.
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