Reverse repo rate is a monetary instrument used by the Central Bank to control unit. If the Central  Bank increase the reverse repo rate, it will lead to _ _ _ _ _ _ _ .

More deposits with Central Bank and decrease the money supply

The correct answer is option (4) : More deposits with Central Bank and decrease the money supply

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.

By increasing the reverse repo rate, the central bank makes it more attractive for commercial banks to park their excess funds with the central bank, rather than lending them out to businesses and consumers. This action reduces the liquidity in the banking system, as banks choose to deposit more funds with the central bank instead of circulating them in the economy. Consequently, decreasing the money supply helps the central bank in controlling inflation and stabilizing the economy.