UPSC Prelims Practice Questions — ‘August retail inflation raises chances of RBI rate hike in October’

Q1. Consider the following statements comparing the Monetary Policy Committee (MPC) with the arrangement that preceded it and with its own internal and external members: 1. Of the six members of the MPC, three — including the Governor as ex officio Chairperson — are from the Reserve Bank, while three are appointed by the Central Government. 2. Unlike the Technical Advisory Committee on Monetary Policy, whose advice was not binding on the Governor, the determination of the policy rate by the MPC is binding on the Reserve Bank. 3. Both the Reserve Bank members and the Central Government-appointed members of the MPC hold office for a fixed term of four years and are eligible for re-appointment. Which of the statements given above is/are correct?

  1. Of the six members of the MPC, three — including the Governor as ex officio Chairperson — are from the Reserve Bank, while three are appointed by the Central Government.
  2. Unlike the Technical Advisory Committee on Monetary Policy, whose advice was not binding on the Governor, the determination of the policy rate by the MPC is binding on the Reserve Bank.
  3. Both the Reserve Bank members and the Central Government-appointed members of the MPC hold office for a fixed term of four years and are eligible for re-appointment.
  • A. 1 and 2 only
  • B. 2 and 3 only
  • C. 1 and 3 only
  • D. 1, 2 and 3

Q2. With reference to the statutory provisions governing the functioning of the Monetary Policy Committee under the Reserve Bank of India Act, 1934, consider the following: 1. The quorum for a meeting of the Committee is four members. 2. Each member has one vote, and in the event of an equality of votes the Governor has a second or casting vote. 3. The Committee is required to meet at least six times in a year. 4. A member who disagrees with the majority may abstain from voting, and in that case no statement of reasons from that member is included in the published minutes. Which of the above is/are NOT correct?

  1. The quorum for a meeting of the Committee is four members.
  2. Each member has one vote, and in the event of an equality of votes the Governor has a second or casting vote.
  3. The Committee is required to meet at least six times in a year.
  4. A member who disagrees with the majority may abstain from voting, and in that case no statement of reasons from that member is included in the published minutes.
  • A. 1 and 3
  • B. 3 and 4
  • C. 2 and 4
  • D. 1, 2 and 3

Q3. Consider the following statements about the evolution of India's flexible inflation targeting framework: 1. The statutory basis for the framework was created by an amendment to the Reserve Bank of India Act that came into force in June 2016, and the first inflation target was notified in the Official Gazette on 5 August 2016. 2. The Expert Committee headed by Urjit Patel, which recommended anchoring monetary policy to a consumer price inflation target, submitted its report in 2013. 3. The target notified for 1 April 2021 to 31 March 2026 was the first of the five-yearly reviews, and the succeeding review was notified in March 2026 for the period 2026-31. Which of the statements given above is/are correct?

  1. The statutory basis for the framework was created by an amendment to the Reserve Bank of India Act that came into force in June 2016, and the first inflation target was notified in the Official Gazette on 5 August 2016.
  2. The Expert Committee headed by Urjit Patel, which recommended anchoring monetary policy to a consumer price inflation target, submitted its report in 2013.
  3. The target notified for 1 April 2021 to 31 March 2026 was the first of the five-yearly reviews, and the succeeding review was notified in March 2026 for the period 2026-31.
  • A. 1 and 2 only
  • B. 2 and 3 only
  • C. 1 and 3 only
  • D. 1, 2 and 3

Q4. Under India's flexible inflation targeting framework, which one of the following situations amounts to a 'failure to achieve the inflation target' by the Reserve Bank, obliging it to report to the Central Government?

  • A. Headline consumer price inflation exceeds 6 per cent in any two consecutive months of a financial year
  • B. Average consumer price inflation deviates from the 4 per cent target by more than two percentage points in any single quarter
  • C. Average wholesale price inflation stays above 6 per cent for two consecutive quarters while retail inflation remains within the band
  • D. Average consumer price inflation stays above the upper tolerance level of 6 per cent for any three consecutive quarters

Q5. Consider the following statements comparing the two headline price indices released in India for August 2026: 1. The wholesale price index released for that month uses 2022-23 as its base year, whereas the consumer price index used for the same month is on a 2024 base. 2. Services such as education, health and transport are covered by the consumer price index but lie outside the wholesale price index, which prices only goods. 3. The item basket and weights of the consumer price index series currently in use are drawn from the Household Consumption Expenditure Survey of 2023-24. Which of the statements given above is/are correct?

  1. The wholesale price index released for that month uses 2022-23 as its base year, whereas the consumer price index used for the same month is on a 2024 base.
  2. Services such as education, health and transport are covered by the consumer price index but lie outside the wholesale price index, which prices only goods.
  3. The item basket and weights of the consumer price index series currently in use are drawn from the Household Consumption Expenditure Survey of 2023-24.
  • A. 1 and 2 only
  • B. 2 and 3 only
  • C. 1 and 3 only
  • D. 1, 2 and 3

Q6. The Wholesale Price Index for India is compiled and released every month by which one of the following?

  • A. The National Statistical Office, Ministry of Statistics and Programme Implementation
  • B. The Office of the Economic Adviser, Ministry of Commerce and Industry
  • C. The Department for Promotion of Industry and Internal Trade, Ministry of Commerce and Industry
  • D. The Department of Economic Affairs, Ministry of Finance

Q7. India's retail inflation rose to 4.82 per cent in August 2026. This reading was the highest in how many months?

  • A. 12 months
  • B. 16 months
  • C. 20 months
  • D. 26 months

Q8. Under the Reserve Bank of India Act, 1934, the dates of the Monetary Policy Committee's review meetings — such as the review due in October 2026 — are fixed in which one of the following ways?

  • A. The Reserve Bank publishes the Committee's meeting schedule for the year ahead of its first meeting in that year
  • B. The Central Government notifies the meeting calendar in the Official Gazette at the beginning of every financial year
  • C. The Central Board of the Reserve Bank approves the calendar at its first meeting of every financial year
  • D. The Committee fixes its own calendar by a majority vote taken at its final meeting of the preceding year

Q9. With reference to global monetary and commodity developments in 2026 that bear upon India's imported-inflation and capital-flow outlook, consider the following: 1. The European Central Bank raised its key policy rates in September 2026, taking its deposit facility rate to 2.5 per cent. 2. The Bank of Japan raised its short-term policy rate to 1 per cent in June 2026, the highest level in about three decades. 3. The United States Federal Reserve raised its federal funds target range to 3.50-3.75 per cent at its July 2026 meeting. 4. Brent crude crossed $100 a barrel in September 2026 as attacks on shipping deepened supply-disruption fears. Which of the above is/are correctly identified?

  1. The European Central Bank raised its key policy rates in September 2026, taking its deposit facility rate to 2.5 per cent.
  2. The Bank of Japan raised its short-term policy rate to 1 per cent in June 2026, the highest level in about three decades.
  3. The United States Federal Reserve raised its federal funds target range to 3.50-3.75 per cent at its July 2026 meeting.
  4. Brent crude crossed $100 a barrel in September 2026 as attacks on shipping deepened supply-disruption fears.
  • A. 1 and 3
  • B. 2 and 4 only
  • C. 1, 2 and 4
  • D. 1, 3 and 4

Q10. The decisions to raise the key interest rates of the euro area in 2026 were taken by which one of the following?

  • A. The Governing Council of the European Central Bank
  • B. The Executive Board of the European Central Bank, acting on its own authority
  • C. The Eurogroup of euro-area finance ministers, whose unanimous approval every rate change requires
  • D. The European Systemic Risk Board, which alone sets policy rates jointly with all national central banks

Q11. With reference to Foreign Currency Non-Resident (Bank) — FCNR(B) — deposits and the Reserve Bank's 2026 measures to attract foreign exchange, consider the following statements: 1. FCNR(B) deposits are term deposits maintained in freely convertible foreign currency, so the depositor's principal is insulated from a depreciation of the rupee. 2. The special USD-INR swap facility opened by the Reserve Bank in June 2026 covered FCNR(B) deposits alone, no other channel of foreign currency inflow being eligible for it. 3. The facility drew total inflows of about $136 billion up to the end of August 2026, of which FCNR(B) deposits accounted for nearly 90 per cent. 4. The Reserve Bank advanced the closing date for fresh deposits qualifying under the facility to 31 August 2026 from the originally announced 30 September 2026. Which of the statements given above is/are correct?

  1. FCNR(B) deposits are term deposits maintained in freely convertible foreign currency, so the depositor's principal is insulated from a depreciation of the rupee.
  2. The special USD-INR swap facility opened by the Reserve Bank in June 2026 covered FCNR(B) deposits alone, no other channel of foreign currency inflow being eligible for it.
  3. The facility drew total inflows of about $136 billion up to the end of August 2026, of which FCNR(B) deposits accounted for nearly 90 per cent.
  4. The Reserve Bank advanced the closing date for fresh deposits qualifying under the facility to 31 August 2026 from the originally announced 30 September 2026.
  • A. 1 and 2 only
  • B. 1, 3 and 4
  • C. 2 and 4 only
  • D. 1, 2, 3 and 4

Q12. The Statutory Liquidity Ratio (SLR) that commercial banks in India are required to maintain is fixed by which one of the following?

  • A. The Monetary Policy Committee, under the Reserve Bank of India Act, 1934
  • B. The Department of Financial Services in the Ministry of Finance
  • C. The Reserve Bank of India, under the Banking Regulation Act, 1949
  • D. The Indian Banks' Association, in consultation with the Reserve Bank of India