UPSC Prelims Practice Questions — Retail inflation crosses RBI’s limit to 6.1% in Oct.

Q1. With reference to the flexible inflation targeting framework under the Reserve Bank of India Act, 1934, consider the following statements: Which of the statements given above is/are correct?

  1. The inflation target is fixed by the Monetary Policy Committee in consultation with the Central Government.
  2. Average inflation remaining below the lower tolerance level for three consecutive quarters also amounts to a failure to meet the target.
  3. On failing to meet the target, the RBI must report to the Central Government the reasons for failure, the remedial actions proposed and the estimated time to achieve the target.
  • A. 1, 2 and 3
  • B. 1 and 3 only
  • C. 1 and 2 only
  • D. 2 and 3 only

Q2. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. The CPI inflation print of 6.1% for October 2026 does not, by itself, mean that the RBI has failed to meet its inflation target under the RBI Act, 1934.
  2. Under the flexible inflation targeting framework, the inflation target is defined in terms of core CPI inflation, which excludes food and fuel.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q3. With reference to the Monetary Policy Committee (MPC) in India, consider the following statements: Which of the statements given above is/are correct?

  1. The MPC was constituted by a resolution of the RBI's Central Board, and the Board can therefore dissolve it.
  2. The MPC's function is to determine the policy repo rate required to achieve the inflation target.
  3. When CPI inflation crosses the upper tolerance level, the Central Government may set aside the MPC's repo rate decision.
  • A. 1 and 2 only
  • B. 2 only
  • C. 2 and 3 only
  • D. 1 and 3 only

Q4. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. If the three MPC members appointed by the Central Government vote for a repo rate cut and the three RBI members vote against it, the cut is carried.
  2. In the event of an equality of votes in the MPC, the RBI Governor has a second or casting vote.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q5. In 2026 the base year of India's Consumer Price Index was revised to 2024=100. In this context, consider the following statements about base-year revision of a price index: Which of the statements given above is/are correct?

  1. A base revision updates the basket of items and their weights to reflect the current consumption pattern of households.
  2. A base revision automatically resets the RBI's inflation target, since the target is defined as a level of the CPI index.
  3. Updating the weights can change measured inflation even if every individual item's price moves exactly as it otherwise would have.
  • A. 1 and 3 only
  • B. 1, 2 and 3
  • C. 1 only
  • D. 2 and 3 only

Q6. Consider the following assertion: 'A rise in the policy repo rate, by itself, may not quickly bring headline CPI inflation back below the upper tolerance level in the coming months.' Which of the statements given below support/supports the above assertion?

  1. The new CPI series gives food a lower weight than the 2012-base series did.
  2. The inflation target is defined in terms of headline CPI, which includes food items whose prices depend on crop supply.
  3. The expected food price pressure comes from lower kharif sowing and weaker tur output, a supply shortfall that interest rates do not directly remedy.
  • A. 3 only
  • B. 1 and 2 only
  • C. 2 and 3 only
  • D. 1, 2 and 3