Which of the following is the main tool of monetary policy of the Reserve Bank of India?
I. Reverse repo operations
II. Transfer payments
Show answer & explanation
Correct answer: A
Explanation
Correct Answer: Option 1 (Only I)
Explanation:
The key monetary policy instruments of the Reserve Bank of India (RBI) include the Repo Operation, through which the RBI provides short-term loans to banks and controls liquidity in the economy.
Interim Payment Interval (II) is not a recognized key monetary policy instrument.
Additional Facts:
The repo rate is the rate at which the RBI lends to commercial banks.
The reverse repo rate is the rate at which the RBI borrows money from banks.
Other key instruments include the CRR (Cash Reserve Ratio) and the SLR (Statutory Liquidity Ratio).
Possible Questions for the Upcoming Exam:
What is the repo rate?
(Answer: The rate at which the RBI lends money to banks)
What is the function of the reverse repo rate?
(Answer: The rate at which the RBI borrows money from banks)
What is the full form of CRR?
(Answer: Cash Reserve Ratio)