The rate at which Reserve Bank of India gives loans to the commercial Bank for longer duration;
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Bank Rate.
The bank rate is the rate at which the RBI gives loans to commercial banks. The RBI’s repo and reverse repo operations run for short periods, such as overnight, 7 days or 14 days. So the rate for longer duration is the bank rate.
Option (1) Repo Rate. — Incorrect. The repo rate is the interest rate at which the RBI lends money by buying securities. The agreement says it will sell them back on a set date and price. These operations run for short periods.
Option (2) Reverse Repo Rate. — Incorrect. Under a reverse repo, the RBI sells securities with an agreement to buy them back. So it takes money from the banks, and this rate is the rate at which money is withdrawn.
Option (3) Bank Rate. — Correct. A higher bank rate makes these loans more expensive, so the banks’ reserves fall and the money supply decreases. A lower bank rate has the opposite effect.
Option (4) Saving Rate. — Incorrect. This is the interest that a bank pays on savings deposits. It is paid by banks to depositors, and the RBI does not lend at it.
Note: A same/similar question was asked in CUET (UG) in the papers below.
| 2026 | 2025 | 2024 | 2023 | 2022 |
| 07-06 S2* | 22-05 S1* 26-05 S2* 28-05 S1 | – | 28-05 S3* 31-05 S3* 08-06 S1* | – |
* A similar question.
NCERT (2026-27): “3.4 Policy Tools to Control Money Supply … There are two types of open market operations: outright and repo. …However, there is another type of operation in which when the central bank buys the security, this agreement of purchase also has specification about date and price of resale of this security. This type of agreement is called a repurchase agreement or repo. The interest rate at which the money is lent in this way is called the repo rate. Similarly, instead of outright sale of securities the central bank may sell the securities through an agreement which has a specification about the date and price at which it will be repurchased. This type of agreement is called a reverse repurchase agreement or reverse repo. The rate at which the money is withdrawn in this manner is called the reverse repo rate. The Reserve Bank of India conducts repo and reverse repo operations at various maturities: overnight, 7-day, 14-day, etc. This type of operations have now become the main tool of monetary policy of the Reserve Bank of India. The RBI can influence money supply by changing the rate at which it gives loans to the commercial banks. This rate is called the Bank Rate in India. By increasing the bank rate, loans taken by commercial banks become more expensive; this reduces the reserves held by the commercial bank and hence decreases money supply. A fall in the bank rate can increase the money supply.” |