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

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Q: 94 (CAPF/2013)
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?

question_subject: 

Economics

question_exam: 

CAPF

stats: 

0,140,117,63,26,140,28

keywords: 

{'reverse repo rate': [0, 0, 0, 1], 'repo rate': [0, 0, 1, 1], 'interest rate': [0, 0, 1, 2], 'rate': [2, 3, 13, 20], 'rbi': [1, 4, 2, 23], 'commercial banks': [0, 0, 1, 1], 'term deposits': [0, 0, 0, 1]}

The correct answer is option 3: 3 only.

Let`s analyze each statement:

1. Statement 1: Repo rate is the interest rate at which RBI lends to commercial banks for a short period. This statement is correct. Repo rate is the rate at which commercial banks borrow funds from the Reserve Bank of India (RBI) to meet their short-term liquidity requirements.

2. Statement 2: Reverse repo rate is the interest rate which RBI pays to commercial banks on short-term deposits. This statement is incorrect. Reverse repo rate is the rate at which RBI borrows funds from commercial banks by offering them government securities as collateral. So, it is the rate at which commercial banks lend to RBI, not the rate at which RBI pays to the banks.

3. Statement 3: The gap between repo rate and reverse repo rate has been declining in India in the recent past. This statement is correct. In recent years, the RBI has been reducing the gap between the repo rate and reverse repo rate to encourage banks to lend more and stimulate economic growth.

To summarize, option 3 is the correct answer because statement 2 is incorrect.