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Questions
What is the reverse repo rate?
What is meant by reverse repo rate?
Long Answer
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Solution
The reverse repo rate refers to the interest rate at which the Reserve Bank of India (RBI) borrows funds from commercial banks for a short duration. This borrowing is facilitated through the sale of government securities to the banks. Commercial banks make use of the reverse repo facility to park their surplus short-term funds with the RBI and, in return, earn interest on those funds. Essentially, the reverse repo rate represents the rate at which the RBI withdraws liquidity from the banking system.
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