Which of the following pairs is correctly matched?

Answer & explanation

Correct answer: option 4

The correct answer is Option (4) → Bank Rate – The rate at which the RBI gives loans to commercial banks

Each option pairs an RBI tool or term with a meaning. Only one pair is right.

Option (1) Repo – The central bank sells securities with an agreement to buy them back at a fixed date and price — Incorrect. A sale with an agreement to buy back is a reverse repo.

Option (2) Moral suasion – A quantitative tool used by the RBI to control money supply — Incorrect. In moral suasion the RBI persuades banks, so it is a qualitative tool.

Option (3) High powered money – The deposits of the public held by commercial banks — Incorrect. High powered money is the currency issued by the central bank.

Option (4) Bank Rate – The rate at which the RBI gives loans to commercial banks — Correct. The RBI gives loans to commercial banks at the Bank Rate.

NCERT (2026-27): “Central bank … This currency issued by the central bank can be held by the public or by the commercial banks, and is called the ‘high-powered money’ or ‘reserve money’ or ‘monetary base’ as it acts as a basis for credit creation.”

“3.4 Policy Tools to Control Money Supply … The tools used by the Central bank to control money supply can be quantitative or qualitative. Quantitative tools, control the extent of money supply by changing the CRR, or bank rate or open market operations. Qualitative tools include persuasion by the Central bank in order to make commercial banks discourage or encourage lending which is done through moral suasion, margin requirement, etc. … 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 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. …”