Read the passage carefully and answer the questions based on the passage:

RBI Monetary Policy

The Reserve Bank of India, in its monetary policy meet decided to keep the key policy rates unchanged after two emergency rate cuts amid the COVID- 19 disruptions and its ensuing economic fall out. Consequently, the repo rate stands unchanged at 4% and the reverse repo rate at 3.35%. RBI noted that the economic activity had started to recover from the lows of April-May. Meanwhile, migrant labor is returning to work in urban areas, and factories and construction activities are coming back to life. This is also reflected in rising levels of energy consumption and population mobility. In cities, traffic intensity is rising rapidly; online commerce is booming; and people are getting back to offices. The mood of the nation has shifted from fear and despair to confidence and hope. Some of this optimism is being reflected in people's expectations. In September 2020, round of the RBI's survey, households expects inflation to decline modestly over the next three months, indicative of hope that supply chains are mending.

A cut in Repo Rate would lead to _____ in Money Supply and a cut in Reverse Repo Rate would lead to ______ in deposits of commercial bank to RBI.

increase; decrease

The correct answer is Option (4) → increase; decrease

1. Cut in Repo Rate:

• What is Repo Rate? The repo rate is the interest rate at which the Reserve Bank of India (RBI) lends money to commercial banks against government securities. It's essentially the cost for commercial banks to borrow money from the RBI.

• Impact of a cut: When the RBI cuts the repo rate, it becomes cheaper for commercial banks to borrow money from the RBI. This reduces their cost of funds, allowing them to lend to businesses and consumers at lower interest rates. Lower interest rates encourage borrowing and spending in the economy, leading to an increase in Money Supply.

2. Cut in Reverse Repo Rate:

• What is Reverse Repo Rate? The reverse repo rate is the interest rate at which the RBI borrows money from commercial banks. It's the rate at which commercial banks park their excess funds with the RBI.

• Impact of a cut: When the RBI cuts the reverse repo rate, it makes it less attractive for commercial banks to deposit their surplus funds with the RBI, as they earn less interest. This discourages banks from parking money with the RBI and encourages them to lend more to the public (businesses and individuals) to earn higher returns. Consequently, there will be a decrease in deposits of commercial banks to RBI.

Putting it together: A cut in Repo Rate would lead to increase in Money Supply and a cut in Reverse Repo Rate would lead to decrease in deposits of commercial bank to RBI.