Question 1

What is the primary objective of the Reserve Bank of India’s Monetary Policy?

Accepted Answer

To maintain price stability while keeping in. The Reserve Bank of India Act, 1934, mandates price stability as the primary goal of monetary policy. Maintaining price stability is essential for sustainable economic growth over the long term. This objective is achieved through the use of various policy instruments like interest rates.

Question 2

Which committee is responsible for determining the policy interest rate in India?

Accepted Answer

Monetary Policy Committee. The Monetary Policy Committee (MPC) was established to decide the benchmark policy rate required to contain inflation. It is a six-member committee consisting of three internal members from RBI and three external members appointed by the Government. This statutory framework was introduced to bring transparency and accountability to monetary policy decisions.

Question 3

What is the frequency of the ordinary meetings of the Monetary Policy Committee (MPC) in a year?

Accepted Answer

At least four times. According to the RBI Act, the Monetary Policy Committee must meet at least four times in a year. Currently, the committee usually meets every two months to review the economic situation. The schedule of these meetings is announced well in advance at the beginning of each financial year.

Question 4

What is the target inflation range set for the RBI under the current flexible inflation targeting framework?

Accepted Answer

4% with a margin of +/- 2%. The Government of India, in consultation with the RBI, has set the inflation target at 4% with an upper tolerance limit of 6% and a lower limit of 2%. This target is measured based on the Consumer Price Index (CPI). Adhering to this range helps maintain macroeconomic stability and inflation expectations.

Question 5

Which of the following is considered a 'Quantitative' tool of monetary policy?

Accepted Answer

Cash Reserve Ratio. Quantitative tools like the Cash Reserve Ratio (CRR) are designed to regulate the total volume of credit in the banking system. They affect all sectors of the economy simultaneously by changing the liquidity available with banks. Qualitative tools, on the other hand, target specific sectors of the economy.

Monetary Policy — Set 1