Given below are two statements:
Assertion (A): Money injected by the RBI through a repo is not injected permanently.
Reason (R): In a repo, the agreement of purchase also specifies the date and price at which the security will be resold.
In the light of the above statements, choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Both (A) and (R) are true and (R) is the correct explanation of (A).
Assertion (A): Money injected by the RBI through a repo is not injected permanently. — True. The money stays in the system only until the RBI sells the security back.
Reason (R): In a repo, the agreement of purchase also specifies the date and price at which the security will be resold. — True. This is what makes a deal a repo.
Why R explains A?
When the RBI buys a security, it pays money into the system. Because the deal fixes a date of resale, the RBI takes that money back on that date. An outright purchase has no such promise, so its injection is permanent.
NCERT (2026-27): “3.4 Policy Tools to Control Money Supply … There are two types of open market operations: outright and repo. Outright open market operations are permanent in nature: when the central bank buys these securities (thus injecting money into the system), it is without any promise to sell them later. Similarly, when the central bank sells these securities (thus withdrawing money from the system), it is without any promise to buy them later. As a result, the injection/absorption of the money is of permanent nature. 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. …” |