Reverse repo rate is the rate at which:
ANo such rate
BRBI lends to banks
CBanks lend to RBI
DRBI absorbs excess liquidity by borrowing from banks
Answer & Solution
Correct answer: D. RBI absorbs excess liquidity by borrowing from banks
Reverse repo: RBI borrows from commercial banks (banks park excess funds with RBI for short term). Used to absorb excess liquidity in banking system. Typically lower than repo rate. Difference between repo and reverse repo = LAF corridor.
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