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    Question

    Which of the following rates signals the RBI’s long-term outlook on interest rates?

    A Repo Rate Correct Answer Incorrect Answer
    B Reverse Repo Rate Correct Answer Incorrect Answer
    C Bank Rate Correct Answer Incorrect Answer
    D SLR Correct Answer Incorrect Answer
    E CRR Correct Answer Incorrect Answer

    Solution

    Repo rate is the rate at which RBI lends to its clients generally against government securities.  Reverse Repo rate is the rate at which RBI borrows money from the commercial banks. Bank rate is the rate charged by the central bank for lending funds to commercial banks. Bank rates influence lending rates of commercial banks. Higher bank rate will translate to higher lending rates by the banks. In order to curb liquidity, the central bank can resort to raising the bank rate and vice versa. Statutory liquidity ratio (SLR) is the Indian government term for reserve requirement that the commercial banks in India require to maintain in the form of gold, government approved securities before providing credit to the customers. Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with the RBI. If the central bank decides to increase the CRR, the available amount with the banks comes down.

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