The question asks about the primary task of the Monetary Policy Committee (MPC) of the RBI. This involves understanding the core mandate of the MPC as defined by the Reserve Bank of India Act, 1934.
Correct Option: B) Consumer Price Index (CPI) inflation target
The question asks about the specific inflation target and its tolerance band under India's flexible inflation targeting framework, which is a key aspect of monetary policy managed by the Reserve Bank of India (RBI).
Correct Option: C) Plus or minus 2 percentage points (2% to 6%)
This option accurately reflects the established inflation target and its tolerance band under India's flexible inflation targeting framework. The target is 4% with a \(\pm 2\%\) band, meaning the inflation rate should ideally stay between 2% and 6%.
The question asks to identify the specific rate at which the Reserve Bank of India (RBI) lends short-term funds to commercial banks against government securities. This is a fundamental concept in monetary policy and banking.
The Repo Rate is the rate at which the Reserve Bank of India (RBI) lends money to commercial banks for a short period, typically overnight, against the collateral of government securities. This is a key monetary policy tool used by the RBI to control inflation and manage liquidity in the economy. When the RBI wants to inject liquidity, it lowers the repo rate; when it wants to absorb liquidity, it raises the repo rate.
The question asks to identify the interest rate at which the Reserve Bank of India (RBI) accepts surplus funds from commercial banks. This is a fundamental concept in monetary policy and banking.
Correct Option: A) The Reverse Repo Rate is the interest rate at which the Reserve Bank of India (RBI) borrows money from commercial banks. This is done by commercial banks parking their surplus funds with the RBI, typically against government securities. It is a key tool for the RBI to absorb liquidity from the banking system.
The question asks about the primary tool the RBI has been using since April 2022 to absorb excess liquidity, replacing the reverse repo rate. This requires knowledge of recent monetary policy changes by the Reserve Bank of India.
Correct Option: D) Standing Deposit Facility (SDF)
The question asks about the Cash Reserve Ratio (CRR) and where banks are required to keep these reserves. Understanding the role of the central bank in monetary policy is key to answering this question.
B) The Reserve Bank of India — The Reserve Bank of India (RBI) is the central bank of India and is responsible for formulating and implementing monetary policy, including setting the Cash Reserve Ratio. Banks are legally required to maintain their CRR balances with the RBI.