Question map
Not attempted Correct Incorrect ★ Bookmarked
Loading…
Q94 (CAPF/2013) Economy › Money, Banking & Inflation › Monetary policy tools Answer Verified

Consider the following statements : 1. Repo rate is the interest rate at which RBI lends to commercial banks for short period. 2. Reverse repo rate is the (interest rate which RBI pays to commercial banks on short- term deposits, 3. Gap between repo rate and reverse repo rate has been declining in India in the recent past. Which of the statements given above is/are not correct?

Result
Your answer: —  Â·  Correct: C
Explanation

Statement 1 is correct as the Repo rate is the interest rate at which the RBI provides short-term liquidity to banks against government securities under the Liquidity Adjustment Facility (LAF) [2]. Statement 2 is correct as the Reverse Repo rate is the rate at which the RBI absorbs liquidity from banks, effectively paying interest on their short-term deposits [2]. Statement 3 is incorrect. Historically, the gap (corridor) between the repo and reverse repo rates was fixed at 100 basis points (1%) for a long period. While the RBI later narrowed this corridor to 25 basis points (0.25%) to reduce volatility [3], the gap has not been consistently 'declining' in the recent past; rather, it has been maintained at a fixed spread or adjusted based on policy stance. Since the question asks for the statement that is 'not correct', only statement 3 fits.

Sources

  1. [1] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > The following are the major instruments/tools that RBI uses for conducting its monetary policy: > p. 61
  2. [2] Macroeconomics (NCERT class XII 2025 ed.) > Chapter 3: Money and Banking > 3.4 POLICY TOOLS TO CONTROL MONEY SUPPLY > p. 43
  3. [3] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > Transmission of Repo Rate into Lending Rate > p. 89
How others answered
Each bar shows the % of students who chose that option. Green bar = correct answer, blue outline = your choice.
Community Performance
Out of everyone who attempted this question.
50%
got it right
✓ Thank you! We'll review this.

SIMILAR QUESTIONS

IAS · 2007 · Q49 Relevance score: 2.93

Consider the following statements: 1. The repo rate is the rate at which other banks borrow from the Reserve Bank of India. 2. A value of 1 for Gini Coefficient in a country implies that there is perfectly equal income for everyone in its population. Which of the statements given above is/are correct?

IAS · 2020 · Q40 Relevance score: 2.10

With reference to the Indian economy, consider the following statements : 1. 'Commercial Paper' is a short-term unsecured promissory note. 2. 'Certificate of Deposit' is a long-term instrument issued by the Reserve Bank of India to a corporation. 3. 'Call Money' is a short-term finance used for interbank transactions. 4. 'Zero-Coupon Bonds' are the interest bearing short-term bonds issued by the Scheduled Commercial Banks to corporations. Which of the statements given above is/are correct ?

CDS-I · 2020 · Q37 Relevance score: 1.82

Which one of the following is not correct about Repo rate?

IAS · 2012 · Q100 Relevance score: 1.32

The Reserve Bank of India (RBI) acts as a bankers’ bank. This would imply which of the following? 1. Other banks retain their deposits with the RB I. 2. The RBI lends funds to the commercial banks in times of need. 3. The RBI advises the commercial banks on monetary matters. Select the correct answer using the codes given below:

CDS-I · 2024 · Q42 Relevance score: 0.78

Consider the following statements regarding instruments of monetary policy : 1. Standing deposit facility (SDF) rate was introduced in April 2022. 2. SDF rate replaced fixed reverse repo rate as the floor of the LAF corridor. Which of the statements given above is/are correct? (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2