The terms 'Repo Rate' and 'Reverse Repo Rate' apply to the transactions between which of the following two entities?

Correct option is C

The terms Repo Rate and Reverse Repo Rate refer to transactions between commercial banks and the Reserve Bank of India (RBI).

• Repo Rate: The interest rate at which commercial banks borrow funds from the RBI by selling securities.
• Reverse Repo Rate: The interest rate at which the RBI borrows money from commercial banks.

Information Booster:

1. Repo Rate: Tool to control liquidity and inflation.
2. Reverse Repo Rate: Tool to absorb excess liquidity from the economy.
3. Current Repo Rate (as of January 2025): 6.5% (subject to change).
4. Impact: An increase in the repo rate makes loans costlier, while a decrease promotes borrowing.
5. Liquidity Adjustment Facility (LAF): RBI uses these rates under LAF to manage liquidity.
6. Monetary Policy Committee (MPC): Determines repo and reverse repo rates.

Additional Knowledge:

• Option (a) Central government and state governments: Financial transactions here are not influenced by repo/reverse repo rates.
• Option (b) Foreign institutional investors and the RBI: Related to forex policies, not repo rates.
• Option (d) Commercial banks and PSUs: Involves corporate lending, not directly related to repo rates.