Monetary Policy — Set 2
Banking · मौद्रिक नीति · Questions 11–20 of 120
When the RBI buys government securities in the open market, what is the intended effect on liquidity?
Correct Answer: B. Liquidity is injected into the system
Buying securities allows the RBI to pay cash to the sellers (banks or public), thereby increasing the cash available in the banking system. This process is part of Open Market Operations (OMO) used to manage systemic liquidity. It is typically done when there is a shortage of liquidity in the market.
What is the 'Bank Rate' currently primarily used for by the RBI?
Correct Answer: D. Calculating penalties for default in reserve
The correct answer is 'Calculating penalties for default in reserve'. The Bank Rate is the rate at which the RBI is prepared to buy or rediscount bills of exchange or other commercial papers. Currently, it is used as a penal rate for banks that fail to maintain required CRR or SLR levels. It is generally aligned with the Marginal Standing Facility (MSF) rate.
The Marginal Standing Facility (MSF) allows banks to borrow funds in an emergency for what duration?
Correct Answer: B. Overnight
MSF is a window for banks to borrow from the RBI in an emergency when inter-bank liquidity dries up. This borrowing is done for an overnight duration by dipping into their SLR quota of securities. The MSF rate is usually kept higher than the Repo Rate to act as a deterrent.
Which document is published by the RBI twice a year to explain the sources of inflation and the forecasts of inflation for the future?
Correct Answer: C. Monetary Policy Report
The Monetary Policy Report is a statutory publication that details the inflation outlook and economic projections. It provides transparency regarding the MPC's views on the macroeconomic environment. This report helps market participants understand the rationale behind policy changes.
In the context of the liquidity corridor, what forms the 'floor' of the corridor?
Correct Answer: B. Standing
The Standing Deposit Facility (SDF) rate currently acts as the floor of the liquidity adjustment corridor. It is the rate at which RBI accepts uncollateralized deposits from banks. The corridor helps in keeping the inter-bank interest rates close to the policy repo rate.
Under the current system, who is the Chairperson of the Monetary Policy Committee (MPC)?
Correct Answer: C. The Governor of the Reserve Bank of India
The Governor of the RBI serves as the ex-officio Chairperson of the MPC. The Governor also has a casting vote in case of a tie in the committee's decision. This ensures that the central bank maintains its lead in monetary management.
What is the 'Marginal Standing Facility' (MSF) rate’s relation to the Repo Rate?
Correct Answer: A. It is always higher
The correct answer is 'It is always higher'. The MSF rate is positioned above the policy repo rate in the liquidity adjustment corridor. It serves as a safety valve for banks to meet their unexpected liquidity shocks. The difference between MSF and Repo rate is usually a fixed percentage determined by the RBI.
Which index is used by the RBI as the headline measure of inflation for monetary policy purposes?
Correct Answer: C. Consumer Price Index (Combined)
The RBI adopted the Consumer Price Index (CPI-C) as the primary indicator for inflation in 2014. It reflects the changes in the price of goods and services consumed by households. Targeting CPI ensures that monetary policy is more responsive to the cost of living of the common person.
What is an 'Accommodation' stance in monetary policy?
Correct Answer: C. A policy to reduce interest rates or
An accommodative stance means the central bank is willing to expand the money supply or lower rates to boost economic activity. This is usually done when inflation is within the target range but growth is sluggish. It indicates that the priority is supporting the economy rather than tightening credit.
What is the term used for the simultaneous purchase and sale of government securities by the RBI to influence long-term interest rates?
Correct Answer: B. Operation Twist
Operation Twist involves the RBI buying long-term securities and selling short-term securities. The goal is to bring down long-term interest rates while keeping short-term rates stable. This tool helps in better transmission of monetary policy and managing the yield curve.