Monetary Policy & RBI Tools — Set 5
Economy Advanced · मौद्रिक नीति और RBI साधन · Questions 41–50 of 200
EBLR stands for what in the context of bank lending rates?
Correct Answer: A. External Benchmark Lending Rate
EBLR stands for External Benchmark Lending Rate. From October 2019, RBI mandated that all new floating rate loans for personal, housing, and MSME sectors be linked to an external benchmark such as the RBI repo rate. This ensures faster and more transparent transmission of monetary policy changes to borrowers compared to the earlier MCLR system.
When RBI raises the Repo Rate, what is the immediate impact?
Correct Answer: B. Banks' cost of borrowing from RBI increases
When RBI raises the Repo Rate, the cost at which commercial banks borrow short-term funds from RBI increases. Banks typically pass on this increased cost to borrowers by raising their lending rates. This makes credit more expensive, reduces borrowing and spending, and helps control inflationary pressures in the economy.
Which of the following is NOT under the Liquidity Adjustment Facility (LAF)?
Correct Answer: C. Bank Rate
The Liquidity Adjustment Facility (LAF) consists of the Repo Rate (borrowing by banks from RBI) and the Reverse Repo Rate (parking funds with RBI). The MSF Rate is above the LAF corridor but is part of the liquidity framework. The Bank Rate is a separate instrument for long-term lending and is not strictly part of the LAF.
India's inflation targeting framework uses which price index as the primary target?
Correct Answer: B. CPI (Combined)
India's inflation targeting framework uses CPI (Combined) as the primary target, set at 4% ±2%. This was formalised through the RBI-Government Monetary Policy Framework Agreement in 2015 and the subsequent amendment to the RBI Act in 2016. CPI captures retail-level prices and better reflects the cost of living for consumers.
What is the difference between WPI and CPI in measuring inflation?
Correct Answer: B. WPI measures wholesale prices, CPI measures consumer/retail prices
WPI (Wholesale Price Index) measures price changes at the wholesale level — between producers and bulk buyers. CPI (Consumer Price Index) measures price changes at the retail level — what consumers actually pay. WPI is compiled by DPIIT (Ministry of Commerce), while CPI is compiled by the National Statistical Office under MOSPI.
Which of the following contributes the largest weight in India's CPI basket?
Correct Answer: C. Food & Beverages
Food & Beverages has the largest weight in India's CPI basket, accounting for approximately 45.86% of the index. This reflects India's socioeconomic structure where food is a major component of household expenditure, particularly in rural areas. This is why food inflation significantly drives overall CPI inflation in India.
What is the Standing Deposit Facility (SDF)?
Correct Answer: B. A collateral-free facility for banks to park excess liquidity with RBI
The Standing Deposit Facility (SDF), introduced by RBI in April 2022, allows commercial banks to park excess liquidity with RBI without requiring collateral (unlike the reverse repo). The SDF rate replaced the reverse repo as the floor of the LAF corridor. It provides RBI with a more flexible tool for absorbing excess liquidity from the system.
What is the role of RBI as 'Banker to the Government'?
Correct Answer: B. RBI provides overdraft and manages public debt for government
The correct answer is RBI provides overdraft and manages public debt for government. As Banker to the Government, RBI manages the banking accounts of the central and state governments, provides temporary overdraft facilities (Ways and Means Advances), manages government's public debt, and conducts open market operations. RBI also advises the government on financial and monetary matters, though fiscal policy is the government's domain. This topic is frequently tested in competitive examinations such as RRB NTPC, SSC, and UPSC.
What does 'priority sector lending' refer to in RBI's developmental role?
Correct Answer: B. Directed credit to agriculture, SMEs, housing, education, etc.
Priority Sector Lending (PSL) is an RBI directive requiring commercial banks to lend a prescribed percentage of their Adjusted Net Bank Credit (ANBC) to priority sectors such as agriculture, MSMEs, affordable housing, education, renewable energy, and weaker sections. The overall PSL target is 40% of ANBC. This supports inclusive growth and rural development.
Which year did India formally adopt flexible inflation targeting as monetary policy framework?
Correct Answer: C. 2015
The correct answer is 2015. India formally adopted the Flexible Inflation Targeting (FIT) framework in February 2015, when the RBI and the Government of India signed a Monetary Policy Framework Agreement. The framework was given statutory backing through the amendment of the RBI Act in May 2016, which established the Monetary Policy Committee and set the inflation target at 4% ±2%. This topic is frequently tested in competitive examinations such as RRB NTPC, SSC, and UPSC.