Q. Which of the following statements is/are correct about reverse repo rate?
1.It is the rate of interest the RBI pays to its clients who offer short-term loan to it.
2.It is reverse of the repo rate and this was started in November 2006 as part of liquidity Adjustment Facility (LAF) by the RBI.
3.In practice, financial institutions operating in India park their surplus funds with the RBI for short[1]term period and earn money.
Choose the correct answer from below given codes:

[A] 1 only

[B] 1 and 3 only

[C] 2 and 3 only

[D] 1, 2 and 3

Answer: B
Notes:

Explanation: It is the rate of interest the RBI pays to its clients who offer short-term loan to it. It is reverse of the repo rate and this was started in November 1996 as part of liquidity Adjustment Facility (LAF) by the RBI.

  • In practice, financial institutions operating in India park their surplus funds with the RBI for short[1]term period and earn money.
  • It has a direct bearing on the interest rates charged by the banks and the financial institutions on their different forms of loans.

Source: Ramesh Singh