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Consider the following statements : a. The Reserve Bank of India is the main agency for implementing the monetary policy. b. To boost economic development is the aim of monetary policy. c. Bank Rate is an instrument of monetary policy. Which of the statements given above are correct ?

Consider the following statements : a. The Reserve Bank of India is the main agency for implementing the monetary policy. b. To boost economic development is the aim of monetary policy. c. Bank Rate is an instrument of monetary policy. Which of the statements given above are correct ? Correct Answer All of the above

The correct answer is All of the above.

Key Points

  • Monetary policy
    • Monetary policy is adopted by the monetary authority of a country that controls either the interest rate payable on very short-term borrowing or the money supply.
    • The policy often targets inflation or interest rate to ensure price stability and generate trust in the currency.
    • The monetary policy in India is carried out under the authority of the Reserve Bank of India.
    • The main objective of monetary policy is to maintain price stability while keeping in mind the objective of growth as price stability is a necessary precondition for sustainable economic growth. 
    • In India, the RBI plays an important role in controlling inflation through the consultation process regarding inflation targeting. The current inflation-targeting framework in India is flexible.
    • Bank Rate Policy:
      • Also known as the discount rate, bank rates are interest charged by the RBI for providing funds and loans to the banking system.
      • An increase in bank rate increases the cost of borrowing by commercial banks which results in the reduction in credit volume to the banks and hence the supply of money declines.
      • An increase in the bank rate is the symbol of the tightening of the RBI monetary policy. As of 31 December 2019, the bank rate is 5.40%.

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Related Questions

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