Macro

Money & Banking

Easy

Comprehension:

Read the passage carefully and answer the questions based on the passage:

RBI Monetary Policy

The Reserve Bank of India, in its monetary policy meet decided to keep the key policy rates unchanged after two emergency rate cuts amid the COVID-19 disruptions and its ensuing economic fall out. Consequently, the repo rate stands unchanged at 4% and the reverse repo rate at 3.35%. RBI noted that the economic activity had started to recover from the lows of April-May. Meanwhile, migrant labor is returning to work in urban areas, and factories and construction activities are coming back to life. This is also reflected in rising levels of energy consumption and population mobility. In cities, traffic intensity is rising rapidly; online commerce is booming; and people are getting back to offices. The mood of the nation has shifted from fear and despair to confidence and hope. Some of this optimism is being reflected in people’s expectations. In September 2020, round of the RBI’s survey, households expects inflation to decline modestly over the next three months, indicative of hope that supply chains are mending.

Repo Rate is the rate at which.

Commercial banks purchase government securities from the central bank.

Commercial banks can take loans from the central bank.

Commercial banks can keep their deposits with the central bank.

Short term loans are given by commercial banks.

✅ Correct Option: 2

Option 1 -> This refers to open market operations, not specifically the repo rate mechanism.

Option 2 -> Repo Rate is the rate at which commercial banks borrow from the central bank by selling securities with an agreement to repurchase.

Option 3 -> This refers to the Reverse Repo Rate, where banks park their surplus funds with the central bank.

Option 4 -> This describes general lending by commercial banks, not the repo rate mechanism.

Hence, Option 2: Commercial banks can take loans from the central bank -> The Repo Rate (Repurchase Rate) is the interest rate at which the central bank lends money to commercial banks against government securities. Banks sell securities to the central bank with an agreement to repurchase them at a future date. It is a key monetary policy tool used to control liquidity and inflation in the economy. When repo rate increases, borrowing becomes expensive, reducing money supply, and vice versa. -> correct

Question 41

The Reserve Bank of India (RBI) __________ government securities in a bid to ________ the stock of money in the economy.

Question 42

A cut in Repo Rate would lead to __________ in Money Supply and a cut in Reverse Repo Rate would lead to __________ in deposits of commercial bank to RBI

Question 43

Why did Monetary Policy Committee keep its policy rate unchanged in its recent meet?

Question 44

Which of the following is not a monetary measure adopted by Reserve Bank of India?

Repo Rate is the rate at which.

Solution

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