Previous Year Questions on Credit and Monetary Policy of RBI

 1. An increase in Bank Rate generally indicates that the market rate of interest is likely to fall. (CSE, 2013)

Market rate of interest is likely to fall.

Central bank is no longer making loans to commercial banks.

Central bank is following an easy money policy.

Central bank is following a tight money policy.

Ans: d)

Answer Explanation:

Central Bank is following a tight money policy. When RBI increases the bank rate, the cost of borrowing for banks rises and this credit volume gets reduced leading to decline in supply of money. Thus, increase in Bank rate reflects tightening of RBI monetary policy.

2) In context of Indian economy , ‘Open Market Operations’ refers to? (CSE, 2013)

Borrowing by Scheduled banks from RBI.

Lending by commercial banks to industry and trade.

Purchase and sale of govt securities by the RBI.

None of the above.

Ans: c)

Answer Explanation:

Purchase and sale of govt securities by RBI. OMOs are conducted by the RBI via the sale/purchase of government securities (G-Sec) to/from the market with the primary aim of modulating rupee liquidity conditions in the market.

3) The terms ‘Marginal Standing Facility Rate’ and ‘Net Demand and Time Liabilities’, sometimes appearing in news, are used in relation to? (CSE, 2014)

Banking Operations

Communication Networking

Military Strategies

Supply and demand of agricultural products.

Ans: a) Banking Operations

4) When RBI reduces Statutory Liquidity Ratio by 50 basis points , which of the following is likely to happen? (CSE, 2015)

India’s GDP growth rate increases drastically.

Foreign Institutional Investors may bring more capital in to our country.

Scheduled Commercial Banks may cut their lending rates.

It may drastically reduce the liquidity to the banking system.

Ans: c)

Answer Explanation:

Scheduled Commercial Banks may cut their lending rates. The RBI reduces SLR in an attempt to provide more liquidity to the banking system. Banks should use this headroom to increase their lending to productive sectors on competitive terms so as to support investment and growth. In order to increase their lendings, SCBs will have to reduce their lending rates.

5) With reference to Indian economy, consider the following:

1. Bank rate

2. Open Market Operations

3. Public debt

4. Public revenue

Which of the above is/are component(s) of Monetary Policy? (CSE, 2015)

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