Monetary Policy — Set 9
Banking · मौद्रिक नीति · Questions 81–90 of 120
What is the primary difference between Repo and MSF?
Correct Answer: A. MSF is a penal rate and higher than Repo
MSF is an emergency window where banks can borrow even by exceeding their SLR limits, but at a higher cost. Repo is the standard borrowing window within specific limits. MSF serves as the 'ceiling' of the interest rate corridor.
In which city is the Reserve Bank of India headquartered?
Correct Answer: D. Mumbai
The RBI was originally established in Kolkata but was permanently moved to Mumbai in 1937. All major policy decisions, including those of the MPC, are coordinated from the Central Office in Mumbai. Mumbai is also the financial capital of India.
Which document is released by the RBI immediately after every MPC meeting?
Correct Answer: C. Monetary Policy Statement
The Monetary Policy Statement contains the MPC's decision on the policy repo rate and the stance of the policy. It provides the rationale for the decision based on current and projected economic conditions. This statement is eagerly awaited by markets and the public.
What does 'Accommodation' in the 'Withdrawal of Accommodation' stance mean?
Correct Answer: C. The policy of keeping interest rates
In central banking terms, 'accommodation' refers to the bank's willingness to support economic growth through low rates and ample liquidity. Withdrawing it means moving toward a 'restrictive' or 'neutral' policy. It is a signal of upcoming rate hikes or liquidity tightening.
Which of these is a benefit of a successful 'Inflation Targeting' framework?
Correct Answer: B. It provides clarity and
The correct answer is 'It provides clarity and'. By committing to a specific target, the central bank helps anchor inflation expectations. Businesses can plan their investments and consumers can plan their savings with more confidence. This stability is a foundation for long-term economic prosperity.
What is the 'Real' interest rate?
Correct Answer: B. The interest rate after adjusting for inflation
The real interest rate is the nominal rate (the one you see) minus the inflation rate. If the bank gives 5% interest but inflation is 6%, the real interest rate is -1%. Central banks aim to keep real interest rates positive to encourage saving.
What is the 'Velocity of Money'?
Correct Answer: D. The number of times a unit of currency
The correct answer is 'The number of times a unit of currency'. Velocity of money is an important indicator of economic activity. High velocity means people are spending money quickly, which can lead to higher growth and potentially higher inflation. It is a key part of the 'Quantity Theory of Money' equation.
Which of these institutions is NOT regulated by the RBI's monetary policy tools directly?
Correct Answer: D. Stock Exchanges
Stock exchanges in India are regulated by the Securities and Exchange Board of India (SEBI). RBI’s tools like CRR and Repo primarily target the banking system. However, changes in monetary policy indirectly affect the stock market by changing the cost of capital.
What is the role of the 'Executive Director' in the MPC?
Correct Answer: A. To serve as a member of the committee from within
One of the three internal members of the MPC is an officer of the RBI (usually an Executive Director) nominated by the Central Board. This member provides deep institutional knowledge and technical support to the committee. Along with the Governor and Deputy Governor, they form the RBI's voting bloc in the MPC.
What is 'Disinflation'?
Correct Answer: D. A slowdown in the rate of increase of prices
Disinflation is different from deflation. In disinflation, prices are still rising, but at a slower pace than before (e.g., from 8% to 5%). Deflation is when prices actually fall (below 0%).