MONETARY POLICY
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Central Banking (Elective) — CAIIB.
One-liners from this chapter
Free sample — 8 of 66 rapid-fire Q&A cards.
What is the primary objective of monetary policy as mandated under the RBI Act, 1934 (amended 2016)?
The primary objective is to maintain price stability while keeping in mind the objective of growth, with the inflation target set by the Central Government in consultation with RBI.
What is the primary tool used by RBI to signal its monetary policy stance to the market?
The policy repo rate is the primary signalling tool.
What is the current inflation target set for RBI under the flexible inflation targeting framework?
The inflation target is 4% (CPI-based) with a tolerance band of +/- 2%, meaning RBI aims to keep inflation between 2% and 6%.
What is the Weighted Average Call Rate (WACR) and why is it significant for monetary policy?
WACR is the overnight interbank rate; it is the RBI's operating target.
Which committee is responsible for deciding the policy repo rate in India?
The Monetary Policy Committee (MPC), constituted under Section 45ZB of the RBI Act, is responsible for determining the policy repo rate to achieve the inflation target.
What does the term 'liquidity trap' mean in the context of monetary policy?
A situation where low rates fail to stimulate spending or investment.
What is the composition of the Monetary Policy Committee (MPC)?
MPC has six members — three from RBI (Governor as Chairperson, Deputy Governor, and one RBI officer) and three external members appointed by the Central Government.
What is the difference between the LAF corridor's ceiling and floor in India?
Ceiling is MSF rate; floor is the SDF rate.
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