Question : The rate at which the RBI lends to commercial banks is called:
Option 1: CRR
Option 2: SLR
Option 3: Repo rate
Option 4: Reverse repo rate
Correct Answer: Repo rate
Solution : The correct answer is (c). Repo rate
The rate at which the Reserve Bank of India (RBI) lends to commercial banks is called the repo rate. Repo stands for repurchase agreement, and it is a mechanism through which the RBI provides short-term liquidity to banks against government securities. When banks face a shortage of funds, they can borrow money from the RBI by selling their eligible securities and agreeing to repurchase them at a future date. The interest rate charged on these transactions is the repo rate. It is an important tool used by the RBI to regulate liquidity in the banking system and influence the cost of borrowing in the economy.
