Question : ___________ is the rate at which the central bank lends money to commercial banks.
Option 1: Repo rate
Option 2: Reverse repo rate
Option 3: Cash reserve ratio (CRR)
Option 4: Statutory liquidity ratio (SLR)
Correct Answer: Repo rate
Solution : The correct answer is (a) Repo rate.
The repo rate is the rate at which the central bank (such as the Reserve Bank of India) lends money to commercial banks for a short-term period. It is an important tool used by the central bank to regulate liquidity in the banking system and control inflation. When the central bank wants to stimulate economic growth, it may lower the repo rate, making it cheaper for banks to borrow money. Conversely, if the central bank wants to reduce inflationary pressures, it may increase the repo rate, making borrowing more expensive for banks and discouraging excessive lending.
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