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. The rate at which such agreements take place is known as------------------.
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Reverse Repo Rate
When the central bank wants to take money out of the banks for a while, it can sell them securities with an agreement to buy them back on a fixed date at a fixed price. The banks pay for the securities now and get their money back later, so for that period the money is withdrawn from them. Such a deal is a reverse repurchase agreement, or reverse repo, and the rate on it is the reverse repo rate.
A repo runs the other way: the central bank buys securities with an agreement to resell them, so it lends money to the banks, and the rate on that is the repo rate.
Why the other options are incorrect
Option (1) Benchmark rate — Incorrect. A benchmark rate is a reference rate against which lenders set the interest rates on their loans. It is a yardstick for other rates, not the rate on a sale-and-repurchase agreement of the central bank.
Option (2) Bank Rate — Incorrect. The bank rate is the rate at which the Reserve Bank gives loans to commercial banks. Raising it makes such borrowing dearer, so banks keep more reserves and lend less. It is the price of a loan from the Reserve Bank, not of a sale of securities with a promise to buy them back.
Option (3) Repo Rate — Incorrect. The repo rate is the rate on money lent to banks against securities the central bank buys, with a promise to sell them back. Here the central bank is selling.
Note: A same/similar question was asked in CUET (UG) in the papers below.
| 2026 | 2025 | 2024 | 2023 | 2022 |
| 11-05 S2 | 30-05 S1* | – | – | – |
* A similar question.
NCERT (2025-26): “3.4 Policy Tools to Control Money Supply … 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 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. The rate at which the money is withdrawn in this manner is called the reverse repo rate.…” |