UPSC Prelims Practice Questions — RBI panel keeps repo rate steady at 5.25%

Question 1

The Monetary Policy Committee of the Reserve Bank of India is constituted by which authority, and under which provision of the Reserve Bank of India Act, 1934?

Accepted Answer

The Central Government, by notification in the Official Gazette, under Section 45ZB

Answer

The Central Board of the Reserve Bank, by resolution, under Section 45ZA

Answer

The Governor of the Reserve Bank, by internal order, under Section 45ZC

Answer

The Financial Stability and Development Council, by notification, under Section 45ZD

Question 2

Consider the following, with reference to the ex officio members of the Monetary Policy Committee under the Reserve Bank of India Act, 1934:
1. The Governor of the Reserve Bank of India, as Chairperson.
2. The Deputy Governor of the Reserve Bank of India in charge of monetary policy.
3. The Chief Economic Adviser in the Department of Economic Affairs, Ministry of Finance.
4. One officer of the Reserve Bank of India nominated by the Central Government.
Which of the above is/are NOT correct?

Accepted Answer

3 and 4

Answer

3 only

Answer

1 and 3

Answer

2 and 4

Question 3

Under the flexible inflation targeting framework, for how many consecutive quarters must average inflation remain outside the notified tolerance band before the Reserve Bank of India is deemed to have failed to maintain the inflation target?

Accepted Answer

Three consecutive quarters

Answer

Two consecutive quarters

Answer

Four consecutive quarters

Answer

Six consecutive quarters

Question 4

The inflation target in terms of the Consumer Price Index under India's flexible inflation targeting framework is determined by which of the following?

Accepted Answer

The Central Government, in consultation with the Reserve Bank, once every five years, notified in the Official Gazette

Answer

The Monetary Policy Committee, in consultation with the Central Government, once every five years, by a published resolution

Answer

The Reserve Bank, in consultation with the Central Government, once every three years, notified in the Official Gazette

Answer

The Central Board of the Reserve Bank, on the recommendation of the Ministry of Finance, once every three years

Question 5

Consider the following statements comparing the policy rates in the Reserve Bank of India's operating framework:
1. The Standing Deposit Facility, introduced in April 2022, replaced the fixed reverse repo rate as the floor of the liquidity adjustment facility corridor, and unlike the reverse repo it involves acceptance of uncollateralised deposits.
2. The Marginal Standing Facility, which forms the ceiling of the corridor, permits banks to borrow overnight from the Reserve Bank by dipping into their Statutory Liquidity Ratio holdings up to a predefined limit.
3. The Bank Rate, at which the Reserve Bank rediscounts bills of exchange and other commercial paper, is aligned with the Standing Deposit Facility rate and changes automatically whenever the latter changes.
Which of the statements given above is/are correct?

Accepted Answer

1 and 2 only

Answer

1 only

Answer

2 and 3 only

Answer

1, 2 and 3

Question 6

Consider the following pairs of monetary policy stance and its meaning:
1. Accommodative — signals the possibility of further reductions in the policy rate and rules out an increase in the near term.
2. Neutral — keeps open the option of either raising or lowering the policy rate, with price stability and growth weighed on incoming data.
3. Withdrawal of accommodation — a restrictive orientation aimed at reducing money supply to curb inflation, under which a rate cut is off the table.
4. Calibrated tightening — indicates that the policy rate may be either raised or lowered at subsequent meetings depending on incoming data.
Which of the above is/are correctly identified?

Accepted Answer

1, 2 and 3

Answer

1 and 2 only

Answer

2 and 3 only

Answer

2, 3 and 4

Question 7

The monetary policy stance announced by the Reserve Bank of India is given day-to-day operational effect primarily through which one of the following?

Accepted Answer

Liquidity Adjustment Facility operations conducted by the Reserve Bank of India

Answer

Ways and Means Advances extended by the Reserve Bank to the Central Government

Answer

The Market Stabilisation Scheme operated under a memorandum with the Government

Answer

The Standing Liquidity Facility extended by the Reserve Bank to primary dealers

Question 8

The Monetary Policy Committee met from 3 to 5 August 2026 and announced its resolution on the policy repo rate. Under the Reserve Bank of India Act, 1934, the minutes of the proceedings of such a meeting are required to be published on:

Accepted Answer

The fourteenth day after the day of the meeting

Answer

The seventh day after the day of the meeting

Answer

The same day on which the resolution is announced

Answer

The thirtieth day after the day of the meeting

Question 9

In the monetary easing cycle that began in February 2025 and ended with the policy repo rate at 5.25 per cent, the single largest reduction in the repo rate effected at any one meeting occurred in:

Accepted Answer

June 2025

Answer

February 2025

Answer

April 2025

Answer

December 2025

Question 10

With reference to the external benchmark-based lending rate system mandated by the Reserve Bank of India with effect from October 2019, which one of the following statements is correct?

Accepted Answer

Banks must link new floating rate retail and MSME loans to a permitted external benchmark, one of which is the policy repo rate

Answer

Banks must link all new loans, whether fixed rate or floating rate, exclusively to the policy repo rate of the Reserve Bank

Answer

Banks must link all their outstanding loans to the Treasury Bill rate, which is the only external benchmark permitted for this purpose

Answer

Banks must link all new floating rate loans to the marginal cost of funds based lending rate published by the Reserve Bank

Question 11

Consider the following statements comparing the quantitative instruments of monetary policy in India:
1. The Cash Reserve Ratio is prescribed under the Reserve Bank of India Act, 1934, whereas the Statutory Liquidity Ratio is prescribed under the Banking Regulation Act, 1949.
2. Open market operations involve outright purchase or sale of government securities and are used to inject or absorb durable liquidity, in contrast to repo operations which address short-term liquidity needs.
3. Balances maintained by a bank towards the Cash Reserve Ratio may be held in unencumbered government securities and gold, whereas assets maintained towards the Statutory Liquidity Ratio must be held as cash balances with the Reserve Bank.
Which of the statements given above is/are correct?

Accepted Answer

1 and 2 only

Answer

1 only

Answer

2 and 3 only

Answer

1, 2 and 3

UPSC Prelims Practice Questions — RBI panel keeps repo rate steady at 5.25%

Q1. The Monetary Policy Committee of the Reserve Bank of India is constituted by which authority, and under which provision of the Reserve Bank of India Act, 1934?

Q3. Under the flexible inflation targeting framework, for how many consecutive quarters must average inflation remain outside the notified tolerance band before the Reserve Bank of India is deemed to have failed to maintain the inflation target?

Q4. The inflation target in terms of the Consumer Price Index under India's flexible inflation targeting framework is determined by which of the following?

Q7. The monetary policy stance announced by the Reserve Bank of India is given day-to-day operational effect primarily through which one of the following?

Q8. The Monetary Policy Committee met from 3 to 5 August 2026 and announced its resolution on the policy repo rate. Under the Reserve Bank of India Act, 1934, the minutes of the proceedings of such a meeting are required to be published on:

Q9. In the monetary easing cycle that began in February 2025 and ended with the policy repo rate at 5.25 per cent, the single largest reduction in the repo rate effected at any one meeting occurred in:

Q10. With reference to the external benchmark-based lending rate system mandated by the Reserve Bank of India with effect from October 2019, which one of the following statements is correct?