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GATE 2020 ST – 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. Under the usual lending-cost interpretation, which inference follows?

  1. A repo-rate cut raises borrowing cost and reduces bank lending.
  2. A repo-rate rise lowers borrowing cost and increases lending.
  3. A repo-rate rise lowers borrowing cost and reduces lending.
  4. A repo-rate cut lowers borrowing cost and increases bank lending.

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Correct answer: (D) A repo-rate cut lowers borrowing cost and increases bank lending.

Explanation

A lower repo rate reduces banks’ cost of borrowing from RBI. In the conventional transmission argument intended, this supports cheaper and more plentiful lending by commercial banks. Therefore D. This is the directional tendency used in the question, not a guarantee about every lending decision.

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