Consider the following statements : 1. Bank Rate is the rate of interest which RBI charges its clients on their short-term borrowing. 2. Repo Rate is the rate of interest which RBI charges its clients on their long-term borrowing. Which of the statements given above is / are incorrect?

Explanation

According to the RBI Act, the bank rate is the rate at which the Reserve Bank rediscounts the bills of commercial banks. In practical terms, the interest rate at which commercial banks obtain long-term loans from the RBI is called the “bank rate.” The bank rate is an important part of the RBI’s monetary policy. On the other hand, at the repo rate, the RBI provides short-term loans to commercial banks. Therefore, both statements 1 and 2 are wrong.