Exercises · Q5
Q.Distinguish between the Bank Rate and the Repo Rate as tools of monetary policy.
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Start your 14-day free trial to unlock the full solution →| Basis | Bank Rate | Repo Rate |
|---|---|---|
| Tenure of funds | Long-term lending by the RBI to banks | Short-term (often overnight) lending by the RBI to banks |
| Security involved | Traditionally unsecured/against eligible bills | Against government securities, under a repurchase (buy-back) agreement |
| Present-day role | Largely a signalling/penal rate, moved in line with the Repo Rate | The RBI's key operative policy rate, reviewed periodically by the Monetary Policy Committee |
| Effect of a rise | Discourages long-term borrowing by banks from the RBI | Immediately raises banks' short-term cost of funds, quickly transmitted to lending rates |
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