The rate, at which RBI lends short-term money to the banks against securities, is called:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Repo Rate
The repo rate is the rate at which the RBI lends short-term money to commercial banks. The bank sells government securities to the RBI with an agreement to buy them back (repurchase) later, so the loan is made against securities. A higher repo rate makes borrowing costlier for banks, which is why the RBI uses it to control inflation.
Why the other options are incorrect
Option (2) Reverse Repo Rate — Incorrect. It is the rate at which the RBI borrows from banks, the reverse direction of the repo.
Option (3) Bank Rate — Incorrect. It is the rate at which the RBI lends to banks for longer periods, without a repurchase agreement on securities.
Option (4) Cash Reserve Ratio — Incorrect. It is the share of deposits a bank must keep as cash with the RBI, not a rate of lending.