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GATE 2020 BT – Question 6

General Aptitude · Verbal Aptitude: Reading Comprehension and Narrative Sequencing · 2 marks · Multiple choice

Repo rate is the rate at which RBI lends to commercial banks; reverse repo is the rate at which RBI borrows from them. Which statement follows?

  1. Decreasing repo rate increases borrowing cost and decreases lending by banks.
  2. Increasing repo rate decreases borrowing cost and increases lending by banks.
  3. Increasing repo rate decreases borrowing cost and decreases lending by banks.
  4. Decreasing repo rate decreases borrowing cost and increases lending by banks.

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Correct answer: (D) Decreasing repo rate decreases borrowing cost and increases lending by banks.

Explanation

Lowering the rate charged to banks reduces their borrowing cost. Under the intended economic reasoning, this supports greater lending by commercial banks. Thus D matches both directions. The reverse-repo definition does not reverse the stated role of repo borrowing.

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