Monetary Policy — Set 5
Banking · मौद्रिक नीति · Questions 41–50 of 120
What is the 'Long Term Repo Operation' (LTRO)?
Correct Answer: B. Lending at repo rate for a tenure
LTRO was introduced to provide long-term liquidity to banks at the prevailing repo rate. Unlike regular Repo which is for overnight, LTRO allows banks to secure funds for 1 to 3 years. This helps in lowering the cost of funds for banks and improving credit flow.
In the MPC, who has the 'Casting Vote' in case of an equality of votes?
Correct Answer: C. The Governor of RBI
According to the RBI Act, if the votes in the MPC are tied, the Governor has a second or casting vote. This prevents a deadlock in monetary policy decisions. Usually, decisions are reached by a simple majority.
What is the term for the interest rate at which the RBI absorbs liquidity from banks without any collateral?
Correct Answer: B. Standing Deposit
The Standing Deposit Facility (SDF) was introduced in 2022 as a collateral-free liquidity absorption tool. Unlike the Reverse Repo, the RBI does not need to provide government securities to banks when it accepts deposits under SDF. It has effectively replaced the Fixed Reverse Repo rate as the primary absorption tool.
Which committee's report led to the creation of the current Monetary Policy Committee structure?
Correct Answer: B. Urjit Patel Committee
The expert committee headed by Urjit Patel (then Deputy Governor) recommended the establishment of a committee-based approach to decide interest rates. The goal was to move away from a single person's decision to a collective, data-driven framework. The report was submitted in 2014 and implemented in 2016.
What is 'Calibrated Tightening' in monetary policy?
Correct Answer: B. A stance where rates can only stay
Calibrated Tightening means that the central bank will either keep the interest rate steady or increase it. A rate cut is completely ruled out in this stance. It is a signal to the market that the bank is worried about inflation and is ready to hike if necessary.
Which of the following is an 'Instrument' of the RBI's Market Stabilization Scheme?
Correct Answer: C. Treasury Bills and Dated
Under MSS, the RBI issues T-Bills and dated securities to mop up liquidity. These are specifically called 'Market Stabilization Bonds'. While they appear as liabilities on the RBI's balance sheet, the funds are not used for government expenditure.
What is 'Headline Inflation'?
Correct Answer: B. Total inflation in an economy including food and
Headline inflation refers to the raw inflation figure reported through the CPI, which includes all categories of goods. It is more volatile than 'core inflation' because it includes food and fuel prices, which fluctuate often. RBI's 4% target is based on this headline inflation.
What is the 'Cash Reserve Ratio' (CRR) limit as per the RBI Act, 1934?
Correct Answer: D. There is no statutory floor
Earlier, the RBI Act specified a range for CRR, but an amendment in 2006 removed both the floor (3%) and the ceiling (15%). This gives the RBI full flexibility to set the CRR at any level based on the economic situation. However, in practice, it is maintained at a level that balances liquidity and bank profitability.
When inflation is too low (deflationary pressure), what action is the RBI likely to take?
Correct Answer: B. Decrease Repo Rate
When inflation is below the target, the RBI lowers interest rates to encourage borrowing and spending. This increases the demand in the economy and helps push inflation back to the target level. This is known as an 'expansionary' monetary policy.
What is 'Core Inflation'?
Correct Answer: C. Inflation calculated by excluding food and
Core inflation is derived by removing the volatile food and fuel components from the headline inflation. It helps economists understand the underlying, long-term inflation trend in the economy. While RBI targets headline inflation, it monitors core inflation closely for policy cues.