The correct answer is A. It will absorb liquidity from the system.
Reverse repo rate is the rate at which commercial banks lend money to the Reserve Bank of India (RBI) on a short-term basis. When the RBI increases the reverse repo rate, it becomes more expensive for banks to borrow money from the RBI. This discourages banks from lending money to businesses and consumers, which reduces the amount of money in circulation. This is called “absorbing liquidity”.
When the RBI decreases the reverse repo rate, it becomes cheaper for banks to borrow money from the RBI. This encourages banks to lend money to businesses and consumers, which increases the amount of money in circulation. This is called “injecting liquidity”.
Option B is incorrect because the reverse repo rate is used to absorb liquidity, not inject liquidity.
Option C is incorrect because the reverse repo rate does have an impact on liquidity position.
Option D is incorrect because the reverse repo rate is a monetary policy tool that is used by the RBI to manage liquidity in the economy.