Monetary Policy — Set 7
Banking · मौद्रिक नीति · Questions 61–70 of 120
What is the 'Effective' Repo Rate currently in the Indian banking system?
Correct Answer: C. The SDF rate during surplus liquidity periods
When the banking system has excess liquidity, banks deposit more money with the RBI than they borrow. In such times, the SDF rate (which replaced the fixed reverse repo) becomes the 'effective' policy rate that guides market interest rates. The policy Repo rate remains the 'signaling' rate.
In which month does the RBI usually announce its first bi-monthly monetary policy of the financial year?
Correct Answer: D. April
The Indian financial year runs from April to March. Therefore, the first bi-monthly review is typically announced in early April. This policy sets the tone for the upcoming year's economic and inflation expectations.
What is 'Seigniorage'?
Correct Answer: C. The profit made by the central bank by
Seigniorage is the difference between the face value of the money and the cost to produce it. Since a 500 rupee note costs much less than 500 rupees to print, the RBI earns a 'profit' from this issuance. This profit eventually forms part of the surplus transferred by the RBI to the Government.
What is the main drawback of using Open Market Operations (OMO)?
Correct Answer: A. It depends on the availability of a
The correct answer is 'It depends on the availability of a'. OMO is effective only if there is a liquid and active market for government bonds where the RBI can buy and sell easily. If the market is shallow, OMO can cause extreme price volatility in securities. India has a fairly developed market, making OMO a regular tool for the RBI.
Which of the following is a 'Direct' monetary policy instrument?
Correct Answer: C. Cash Reserve Ratio
Direct instruments like CRR and SLR set specific reserve requirements for banks to follow. Indirect instruments like the Repo Rate influence liquidity and interest rates through market mechanisms. RBI uses a mix of both, but there is an increasing preference for indirect tools.
What is 'Dovish' stance in monetary policy?
Correct Answer: C. A stance that favors lower interest rates to
A dovish policy is the opposite of a hawkish one. It indicates that the central bank is more concerned about economic growth than inflation and is likely to keep interest rates low. This term is borrowed from the 'dove', a symbol of peace and gentleness.
What happens if a bank’s CRR falls below the required percentage?
Correct Answer: C. The bank must pay a penalty to the RBI
RBI charges a penal interest on the amount of the shortfall in the CRR. This penalty is usually calculated at a rate above the Bank Rate. This ensures that banks strictly adhere to the reserve mandates.
Who among the following is a permanent internal member of the MPC?
Correct Answer: D. The Deputy Governor in charge of
The Deputy Governor of the RBI in charge of the monetary policy department is one of the three internal members. The other two are the Governor and one officer nominated by the RBI Board. This ensures continuity and expertise from within the central bank.
What is the 'Base Year' for the current Consumer Price Index (Combined) in India?
Correct Answer: A. 2012
The current series of CPI (Combined) uses 2012 as the base year for calculation. The base year is a reference point used to compare price levels over time. It is periodically updated by the government to reflect changing consumption patterns.
What is the meaning of 'Open' in Open Market Operations?
Correct Answer: A. Buying from anyone who is willing to
The correct answer is 'Buying from anyone who is willing to'. Open Market means the transactions are not restricted to any specific entity; the RBI buys or sells securities in the general financial market. These operations are conducted with primary dealers and banks. It allows for a market-based determination of prices and interest rates.