The correct answer is The interest rate at which the Reserve Bank provides overnight liquidity to banks against the collateral of government and other approved securities under the liquidity adjustment facility.

• Repo Rate:
  • ​Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds.
  • The word ‘Repo’ technically stands for ‘Repurchasing Option’ or ‘Repurchase Agreement’.
  • Both the parties are required to sign an agreement of repurchasing which will state the repurchasing of the securities on a specific date at a predetermined price.
  • Repo rate is used by monetary authorities to control inflation.
  • The current Repo Rate is at 4.00%. (December 2020).
  • Repo rate is decided by the Monetary policy committee of RBI.
  • The Central Bank RBI reviews the repo rate in every two months.

• Reverse Repo Rate:
  • ​The interest rate at which the Reserve Bank absorbs liquidity, on an overnight basis, from banks against the collateral of eligible government securities under the liquidity adjustment facility.
  • The current Reverse Repo Rate is at 3.35%. (December 2020)
  • It is used to manage cash-flow.