UPSC Prelims Practice Questions — Inflation control remains RBI’s foremost priority, says Governor

Q1. The statutory basis for India's Flexible Inflation Targeting framework was first provided by which one of the following?

  • A. The Monetary Policy Framework Agreement of 2015
  • B. The FRBM Act, 2003
  • C. An amendment to the RBI Act, 1934 carried out in 2016
  • D. The RBI Act at its original enactment in 1934

Q2. Consider the following statements comparing the position before and after the 2016 amendment to the RBI Act, 1934: 1. Before the amendment, monetary policy decisions effectively rested with the RBI Governor, whereas afterwards the rate-setting power vests in a statutory Monetary Policy Committee. 2. The inflation target is set by the Reserve Bank, whereas before the amendment it was set by the Central Government. 3. Section 45ZA deals with setting the inflation target, while Section 45ZB deals with the constitution of the Monetary Policy Committee. Which of the statements given above is/are correct?

  1. Before the amendment, monetary policy decisions effectively rested with the RBI Governor, whereas afterwards the rate-setting power vests in a statutory Monetary Policy Committee.
  2. The inflation target is set by the Reserve Bank, whereas before the amendment it was set by the Central Government.
  3. Section 45ZA deals with setting the inflation target, while Section 45ZB deals with the constitution of the Monetary Policy Committee.
  • A. 1 and 2 only
  • B. 1 and 3 only
  • C. 2 and 3 only
  • D. 1, 2 and 3

Q3. With reference to India's CPI inflation target under the RBI Act, 1934, consider the following: 1. The target is measured in terms of the Consumer Price Index (CPI). 2. The Central Government determines the target in consultation with the RBI. 3. The target is reviewed once every three years. 4. The upper tolerance limit is 6% and the lower tolerance limit is 2%. Which of the statements given above are correctly identified?

  1. The target is measured in terms of the Consumer Price Index (CPI).
  2. The Central Government determines the target in consultation with the RBI.
  3. The target is reviewed once every three years.
  4. The upper tolerance limit is 6% and the lower tolerance limit is 2%.
  • A. 1, 2 and 3
  • B. 1, 2 and 4
  • C. 2, 3 and 4
  • D. 1, 3 and 4

Q4. Which one of the following statements about the setting of India's CPI inflation target is correct?

  • A. The RBI alone and exclusively fixes the inflation target, without any government involvement.
  • B. Once set, the inflation target is permanent and cannot be revised.
  • C. The Central Government determines the inflation target in consultation with the RBI, once every five years.
  • D. The Monetary Policy Committee necessarily sets the inflation target afresh at each of its meetings.

Q5. Consider the following statements about the Monetary Policy Committee (MPC): 1. The MPC comprises three members from the RBI and three external members appointed by the Central Government. 2. The Governor of the RBI is the ex officio Chairperson of the MPC and, in the event of a tie, has a casting vote. 3. The external members of the MPC are nominated by the Central Board of the RBI, while the RBI officer member is appointed by the Central Government. Which of the statements given above is/are correct?

  1. The MPC comprises three members from the RBI and three external members appointed by the Central Government.
  2. The Governor of the RBI is the ex officio Chairperson of the MPC and, in the event of a tie, has a casting vote.
  3. The external members of the MPC are nominated by the Central Board of the RBI, while the RBI officer member is appointed by the Central Government.
  • A. 1 and 2 only
  • B. 2 and 3 only
  • C. 1 and 3 only
  • D. 1, 2 and 3

Q6. In India, the policy repo rate required to achieve the inflation target is determined by which one of the following?

  • A. The Central Board of the Reserve Bank of India
  • B. The Financial Stability and Development Council
  • C. The Department of Economic Affairs, Ministry of Finance
  • D. The Monetary Policy Committee

Q7. The retention of the 4% CPI inflation target for the period April 1, 2026 to March 31, 2031 was decided by which one of the following?

  • A. The Monetary Policy Committee, unilaterally
  • B. The RBI Governor, exclusively
  • C. Parliament, necessarily through a fresh amendment to the RBI Act
  • D. The Central Government, in consultation with the RBI

Q8. Consider the following statements about successive reviews of India's CPI inflation target: 1. The 4% CPI target with a 2–6% tolerance band was first notified in 2016. 2. The first quinquennial review in 2021 revised the target down to 2% with a 1–3% band. 3. The second review in 2026 retained the 4% target and the 2–6% band. Which of the statements given above is/are correct?

  1. The 4% CPI target with a 2–6% tolerance band was first notified in 2016.
  2. The first quinquennial review in 2021 revised the target down to 2% with a 1–3% band.
  3. The second review in 2026 retained the 4% target and the 2–6% band.
  • A. 1 and 2 only
  • B. 1 and 3 only
  • C. 2 and 3 only
  • D. 1, 2 and 3

Q9. With reference to the Foreign Currency Non-Resident (Bank) — FCNR(B) — deposit scheme, consider the following: 1. NRIs and Persons of Indian Origin are eligible to open FCNR(B) accounts. 2. FCNR(B) deposits are maintained only in Indian rupees, without exception. 3. FCNR(B) term deposits may be held for periods ranging from 6 months to 3 years. 4. FCNR(B) accounts can never be held jointly with a resident Indian. Which of the statements given above are correctly identified?

  1. NRIs and Persons of Indian Origin are eligible to open FCNR(B) accounts.
  2. FCNR(B) deposits are maintained only in Indian rupees, without exception.
  3. FCNR(B) term deposits may be held for periods ranging from 6 months to 3 years.
  4. FCNR(B) accounts can never be held jointly with a resident Indian.
  • A. 1 and 3
  • B. 1 and 2
  • C. 2 and 4
  • D. 3 and 4

Q10. Consider the following positions attributed to RBI Governor Sanjay Malhotra in 2026 on the external sector and monetary policy: 1. Inflation control remains the RBI's foremost priority. 2. The rupee is not overvalued; on some measures it may even be undervalued. 3. The inflation target has been placed in abeyance to prioritise growth. 4. The RBI is absorbing hedging costs on fresh FCNR(B) deposits. Which of the statements given above is/are NOT correctly attributed?

  1. Inflation control remains the RBI's foremost priority.
  2. The rupee is not overvalued; on some measures it may even be undervalued.
  3. The inflation target has been placed in abeyance to prioritise growth.
  4. The RBI is absorbing hedging costs on fresh FCNR(B) deposits.
  • A. 3 only
  • B. 1 and 3
  • C. 2 only
  • D. 3 and 4

Q11. External Commercial Borrowings (ECBs) in India are regulated under which one of the following?

  • A. The RBI Act, 1934
  • B. The FRBM Act, 2003
  • C. The Foreign Exchange Management Act, 1999
  • D. The Foreign Contribution (Regulation) Act, 2010