Monetary Policy — Set 11
Banking · मौद्रिक नीति · Questions 101–110 of 120
Which of the following is a 'Qualitative' tool of monetary policy?
Correct Answer: A. Moral Suasion
Qualitative or selective tools are used to control the flow of credit to specific sectors. Moral suasion involves the RBI persuading and advising banks to follow certain credit policies without using force. CRR, SLR, and Bank Rate are quantitative tools that affect the whole system.
What is the 'Statutory Liquidity Ratio' (SLR)?
Correct Answer: B. Percentage of deposits banks must hold in
SLR is a mandatory requirement for banks to maintain a portion of their deposits in liquid assets such as gold, cash, or government-approved securities. This ensures that banks always have some liquid assets to meet their depositors' needs. It also helps the government in borrowing money from the banking system.
Who is the Chairperson of the Monetary Policy Committee (MPC)?
Correct Answer: D. Governor of the Reserve Bank of India
The Governor of the RBI is the ex-officio chairperson of the MPC. The committee consists of six members who decide the benchmark interest rates for the country. This committee-based approach was introduced in 2016.
What is 'Open Market Operations' (OMO)?
Correct Answer: B. Buying and selling of government securities by
OMOs involve the purchase or sale of government securities by the central bank to regulate the money supply. When the RBI buys securities, it injects cash into the banking system. When it sells them, it absorbs excess liquidity from the system.
Which rate is also known as the 'Penal Rate' for banks borrowing beyond their limits from RBI?
Correct Answer: A. Marginal Standing
The correct answer is 'Marginal Standing'. MSF is a window for banks to borrow from the RBI in an emergency when inter-bank liquidity dries up. The MSF rate is usually higher than the Repo rate to act as a deterrent for excessive borrowing. It was introduced to help banks manage sudden shocks.
Which index is used by the RBI as the primary measure of inflation for its monetary policy?
Correct Answer: D. Consumer Price Index (Combined)
The RBI uses the Consumer Price Index (CPI-Combined) as its primary tool for inflation targeting. It reflects the price changes of goods and services at the retail level. The target is usually to keep CPI inflation at 4% with a tolerance band of +/- 2%.
What is the 'Bank Rate'?
Correct Answer: B. The standard rate at which RBI buys or
The Bank Rate is the rate at which the RBI provides long-term funds to banks. It is also the rate used to calculate penalties on banks for failing to maintain CRR or SLR. Currently, it is generally aligned with the MSF rate.
How many members are there in the Monetary Policy Committee (MPC)?
Correct Answer: C. Six
The MPC is a six-member committee. Three members are from the RBI (including the Governor), and three are external members appointed by the Government of India. This ensures a balance between the central bank's views and external expertise.
What is 'Moral Suasion'?
Correct Answer: B. Informal advice and pressure by the RBI
Moral suasion is a qualitative tool where the RBI uses persuasion and informal suggestions to guide commercial banks. It is often used to encourage banks to reduce interest rates or prioritize lending to certain sectors. It does not carry legal force but is usually effective due to the RBI's authority.
When inflation is very high, the RBI is likely to adopt which type of monetary policy?
Correct Answer: B. Contractionary (Tight) Monetary
A contractionary or tight monetary policy aims to reduce the money supply and slow down economic activity to control inflation. This involves increasing interest rates and reserve requirements. It makes borrowing expensive and saving more attractive.