UPSC Prelims Practice Questions — RBI MPC highlights widening inflationary pressure in economy

Q1. With reference to the statutory monetary policy framework under the Reserve Bank of India Act, 1934, as amended in 2016, consider the following statements: Which of the statements given above is/are correct?

  1. The Act makes price stability the primary objective of monetary policy while requiring that the objective of growth be kept in mind.
  2. The inflation target is specified in terms of the Consumer Price Index rather than the Wholesale Price Index.
  3. The inflation target is defined in terms of core CPI inflation, so that volatile food and fuel prices cannot by themselves push inflation outside the tolerance band.
  • A. 2 and 3 only
  • B. 1 and 3 only
  • C. 1 and 2 only
  • D. 1, 2 and 3

Q2. With reference to the consequences of the Reserve Bank of India failing to meet the inflation target under the RBI Act, 1934, consider the following statements: Which of the statements given above is/are correct?

  1. Such a failure automatically ends the term of the external members of the Monetary Policy Committee.
  2. The RBI must report to the Central Government the reasons for the failure, the remedial actions proposed and an estimate of when the target will be achieved.
  3. Average inflation below the lower tolerance limit for three consecutive quarters also amounts to failure.
  • A. 1 and 2 only
  • B. 3 only
  • C. 1, 2 and 3
  • D. 2 and 3 only

Q3. With reference to headline and core inflation, consider the following statements: Which of the statements given above is/are correct?

  1. Because core inflation excludes food and fuel, a sustained rise in it indicates price pressures spreading beyond items prone to transient supply shocks.
  2. Since fuel is excluded from the core inflation basket, a sustained oil price shock cannot raise core inflation.
  3. A fall in core inflation alongside rising headline inflation would indicate that price pressures are becoming broad-based.
  • A. 1 and 3 only
  • B. 1 only
  • C. 2 and 3 only
  • D. 1 and 2 only

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

  1. The RBI's monetary policy can look through the first-round impact of a short-lived vegetable price spike on headline inflation, while staying ready to act on second-round effects.
  2. Food prices are excluded from the Consumer Price Index measure on which India's inflation target is defined.
  • 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. Consider the following data reported in the minutes of the Monetary Policy Committee in October 2026: core CPI inflation (excluding food and fuel) rose from 3.9% in July to 4.2% in August 2026, and the share of CPI items with inflation above 4% rose from 20% in March to 37% in August 2026. Which of the following inferences can validly be drawn from the above data?

  1. Price increases are spreading across a wider part of the consumption basket.
  2. Inflationary pressure is no longer confined to the food and fuel groups.
  3. The rise in inflation is entirely the result of higher global crude oil prices.
  4. Growth in wages has already overtaken growth in prices across the economy.
  • A. 1 and 2 only
  • B. 2 and 4 only
  • C. 1, 2 and 3 only
  • D. 1, 3 and 4 only

Q6. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. The Monetary Policy Committee can raise the policy repo rate while retaining a neutral stance, as it did in June 2018.
  2. The stance signals the likely direction of future policy action, whereas the repo rate decision sets the policy rate for the present.
  • 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

Q7. With reference to decision-making in the Monetary Policy Committee of the RBI, consider the following statements: Which of the statements given above is/are correct?

  1. The published minutes of an MPC meeting record the vote of each member on the resolution.
  2. The Governor has a second or casting vote, which is exercised only when there is an equality of votes.
  3. A member may vote in favour of a change in the repo rate while voting against a change in the policy stance.
  • A. 1 and 3 only
  • B. 2 and 3 only
  • C. 1, 2 and 3
  • D. 1 and 2 only

Q8. Rising global crude oil prices linked to the West Asia conflict were named by the RBI's Monetary Policy Committee in October 2026 as an upside risk to inflation. In this context, consider the following statements: Which of the statements given above is/are correct?

  1. A crude oil price rise is a cost-push shock: it raises domestic prices mainly through higher production and transport costs rather than through excess demand.
  2. Because the shock originates in global markets, a domestic repo rate hike cannot influence the inflation expectations arising from it.
  3. Tightening monetary policy in response to such a supply shock risks slowing output growth while inflation stays elevated.
  • A. 1, 2 and 3
  • B. 1 and 3 only
  • C. 2 and 3 only
  • D. 2 only