UPSC Prelims Practice Questions — Investors dump India bonds after hawkish RBI minutes

Q1. Under the Reserve Bank of India Act, 1934, what is the minimum number of members whose presence constitutes the quorum for a meeting of the Monetary Policy Committee?

  • A. Three
  • B. Four
  • C. Five
  • D. Six

Q2. Consider the following descriptions of persons said to sit on the Monetary Policy Committee by virtue of office under Section 45ZB of the Reserve Bank of India Act, 1934: 1. The Governor of the Reserve Bank of India, as Chairperson. 2. A Deputy Governor of the Reserve Bank nominated by the Central Board of Directors. 3. An officer of the Reserve Bank who is in charge of monetary policy. 4. The Secretary, Department of Economic Affairs, Ministry of Finance. Which of the above is/are NOT correctly described?

  1. The Governor of the Reserve Bank of India, as Chairperson.
  2. A Deputy Governor of the Reserve Bank nominated by the Central Board of Directors.
  3. An officer of the Reserve Bank who is in charge of monetary policy.
  4. The Secretary, Department of Economic Affairs, Ministry of Finance.
  • A. 1 and 4 only
  • B. 2 and 3 only
  • C. 2, 3 and 4
  • D. 4 only

Q3. Consider the following statements regarding the inflation target notified for the period beginning 1 April 2026 as compared with the targets notified for the earlier periods: 1. It retains a Consumer Price Index inflation target of 4 per cent with an upper tolerance level of 6 per cent and a lower tolerance level of 2 per cent, as in the preceding periods. 2. Unlike the earlier notifications, it was issued by the Reserve Bank of India in consultation with the Central Government. 3. It is the third such target notified since flexible inflation targeting was given a statutory basis by amendment of the Reserve Bank of India Act, 1934. Which of the statements given above is/are correct?

  1. It retains a Consumer Price Index inflation target of 4 per cent with an upper tolerance level of 6 per cent and a lower tolerance level of 2 per cent, as in the preceding periods.
  2. Unlike the earlier notifications, it was issued by the Reserve Bank of India in consultation with the Central Government.
  3. It is the third such target notified since flexible inflation targeting was given a statutory basis by amendment of the Reserve Bank of India Act, 1934.
  • A. 1 and 2 only
  • B. 1 and 3 only
  • C. 2 and 3 only
  • D. 1, 2 and 3

Q4. Under India's flexible inflation targeting framework, a 'failure to maintain the inflation target' is deemed to have occurred in which one of the following situations?

  • A. Headline inflation exceeds the notified target of 4 per cent in any six consecutive months of a financial year
  • B. Average inflation breaches the upper tolerance level in any two consecutive quarters of a financial year
  • C. Average inflation stays above the upper tolerance level, or below the lower tolerance level, for three consecutive quarters
  • D. Average inflation deviates from the notified target of 4 per cent in each quarter of a full financial year

Q5. The publication of the minutes of the proceedings of every Monetary Policy Committee meeting is the statutory responsibility of which one of the following?

  • A. The Reserve Bank of India, which must publish them on the fourteenth day after every meeting of the Committee
  • B. The Monetary Policy Committee itself, all of whose members must jointly sign and release them before dispersing
  • C. The Department of Economic Affairs, which must place them before both Houses of Parliament within thirty days
  • D. The Financial Stability and Development Council, which must publish them along with its own quarterly review

Q6. The requirement to publish the resolution adopted at a Monetary Policy Committee meeting together with the vote of each member ascribed to that member is laid down in which one of the following provisions of the Reserve Bank of India Act, 1934?

  • A. Section 45ZB
  • B. Section 45ZI
  • C. Section 45ZN
  • D. Section 45ZL

Q7. In the government securities sell-off that followed the release of the Reserve Bank's August 2026 Monetary Policy Committee minutes, the sharpest single-session hardening of yield was recorded by which one of the following?

  • A. The ten-year benchmark dated government security
  • B. The five-year benchmark dated government security
  • C. The 364-day Treasury bill of the Government of India
  • D. The thirty-year benchmark dated government security

Q8. The Monetary Policy Committee's August 2026 decision to leave the policy repo rate at 5.25 per cent marked how many successive reviews at which the rate had been left unchanged?

  • A. Second
  • B. Third
  • C. Fourth
  • D. Fifth

Q9. The 'yield to maturity' of a government security is best described as which one of the following?

  • A. The annual coupon payment expressed as a percentage of the face value of the security
  • B. The annual coupon payment expressed as a percentage of the prevailing market price of the security
  • C. The excess of the redemption value of the security over its purchase price, expressed as an annual rate
  • D. The rate that equates the present value of the security's future cash flows to its current market price

Q10. Dated securities of the Government of India, including the benchmark ten-year security, are issued to the market through auctions conducted by which one of the following?

  • A. The Reserve Bank of India, acting as banker and debt manager to the Central Government under the Reserve Bank of India Act, 1934
  • B. The Securities and Exchange Board of India, which regulates the issue and trading of debt securities in India
  • C. The Clearing Corporation of India Limited, which guarantees the settlement of trades in government securities
  • D. The Public Debt Management Cell of the Department of Economic Affairs, Ministry of Finance

Q11. Once the Monetary Policy Committee has decided the policy repo rate, that decision is given effect in the money market principally through which one of the following?

  • A. Ways and Means Advances extended by the Reserve Bank to the Central Government under Section 17(5) of the Reserve Bank of India Act, 1934
  • B. The Liquidity Adjustment Facility, through which the Reserve Bank aligns the weighted average call rate with the policy repo rate
  • C. The statutory liquidity ratio, revised in step with the policy repo rate by the Department of Financial Services, Ministry of Finance
  • D. Auctions of Treasury bills conducted by the Public Debt Management Cell of the Department of Economic Affairs

Q12. Following the Monetary Policy Committee's December 2025 decision — the last change made in the policy repo rate before the August 2026 review — the yield on the ten-year benchmark government security behaved in which one of the following ways?

  • A. It softened by about 25 basis points, mirroring the size of the change in the policy repo rate
  • B. It remained broadly unchanged, the change in the policy repo rate having been fully priced in beforehand
  • C. It hardened by about 14 basis points because the policy repo rate had been raised by 25 basis points
  • D. It hardened by about 14 basis points even though the policy repo rate had been cut by 25 basis points