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      Question

      Which statement regarding the repo rate is INCORRECT?

      A It is a single policy rate signaling monetary policy stance to achieve macroeconomic objectives of growth with price stability Correct Answer Incorrect Answer
      B It is a policy rate which is the key lending rate of the central bank, with nomenclature varying by country Correct Answer Incorrect Answer
      C It is the rate at which banks place their funds with the RBI and receive collateral Correct Answer Incorrect Answer
      D It is the rate at which commercial banks borrow funds from the RBI Correct Answer Incorrect Answer

      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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