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Economy & Development Cluster51 Verified Questions
RBI Monetary Policy GK Questions & Answers
The Reserve Bank of India (RBI), established under the Reserve Bank of India Act 1934, conducts monetary policy to maintain price stability while sustaining economic expansion. The institutional architecture underwent statutory restructuring in 2016 through the insertion of Section 45ZB, establishing the six-member Monetary Policy Committee (MPC). Comprising the RBI Governor, Deputy Governor, an Executive Director, and three external members appointed by the Central Government, the MPC convenes at least four times annually to determine the policy repo rate. Under the flexible inflation targeting framework, the committee targets a Consumer Price Index (CPI) inflation rate of 4 percent with an allowable tolerance band of plus or minus 2 percent. The Liquidity Adjustment Facility (LAF) operates with the repo rate as the key policy anchor. The Standing Deposit Facility (SDF), instituted in 2022 under Section 17, absorbs surplus liquidity without collateral, setting the corridor floor, while the Marginal Standing Facility (MSF) acts as the penal ceiling. Quantitative reserve requirements reinforce credit control: the Cash Reserve Ratio (CRR) mandates liquid cash balances under Section 42, whereas the Statutory Liquidity Ratio (SLR) under Section 24 of the Banking Regulation Act 1949 directs scheduled commercial banks to hold gold, cash, or unencumbered government securities.
High-yield conceptual summaries for competitive exams and rapid revision.
The Monetary Policy Committee (MPC) comprises 6 members (3 RBI officials and 3 Central Government appointees) constituted under Section 45ZB of the RBI Act 1934.
India practices Flexible Inflation Targeting (FIT) targeting CPI headline inflation at 4% with an allowable tolerance band of 2% to 6%.
The Liquidity Adjustment Facility (LAF) corridor consists of the Standing Deposit Facility (SDF) at the floor, Repo Rate as the benchmark, and Marginal Standing Facility (MSF) at the ceiling.
Cash Reserve Ratio (CRR) mandates scheduled commercial banks to park a specified percentage of Net Demand and Time Liabilities (NDTL) as cash reserves with the RBI without earning interest.
Statutory Liquidity Ratio (SLR) requires banks under Section 24 of the Banking Regulation Act 1949 to maintain liquid assets in approved government securities, gold, or cash before extending credit.
Showing 25 Curated Questions51 Total in Bank
1ID: GK-ECON-00596
easyBanking & RBI
In monetary policy, what is the 'Repo Rate' defined as by the Reserve Bank of India?
Verified Explanation
Repo (Repurchase Option) rate is the benchmark policy rate at which the RBI provides liquidity to scheduled commercial banks against approved government securities.
2ID: GK-ECON-00611
mediumBanking & RBI
The Monetary Policy Committee (MPC) of the Reserve Bank of India, responsible for fixing the benchmark policy repo rate, consists of how many total members?
Verified Explanation
Under Section 45ZB of the amended RBI Act 1934, the MPC consists of 6 members: the RBI Governor (Chairperson), Deputy Governor in charge of monetary policy, one RBI officer, and 3 external experts appointed by the Central Government.
3ID: GK-BANK-00199
easyFinancial Terms, Money Markets & Capital Instruments
In the asymmetric Liquidity Adjustment Facility (LAF) corridor of the Reserve Bank of India, what is the fixed spread of the Standing Deposit Facility (SDF) rate relative to the Policy Repo Rate?
Verified Explanation
In the LAF corridor, the Policy Repo Rate sits in the middle, the Marginal Standing Facility (MSF) rate is set at Repo + 25 bps as the ceiling, and the Standing Deposit Facility (SDF) rate is set at Repo - 25 bps as the floor.
4ID: GK-BANK-00546
easyCommercial Banks, Payment Banks & SFBs
In the operating framework of the Reserve Bank of India, what is the 'Repo Rate'?
Verified Explanation
The Repo Rate (Repurchase Option Rate) is the policy interest rate at which the Reserve Bank of India lends short-term money to commercial banks against eligible collateral (government and other approved securities) under the Liquidity Adjustment Facility (LAF).
5ID: GK-BANK-00052
hardFinancial Terms, Money Markets & Capital Instruments
What is the statutory spread between the Standing Deposit Facility (SDF) rate and the Marginal Standing Facility (MSF) rate around the Policy Repo Rate in RBI's asymmetric LAF corridor?
Verified Explanation
In April 2022, RBI restored the 50 bps Liquidity Adjustment Facility (LAF) corridor: SDF rate is 25 bps below the policy repo rate (floor), and MSF rate is 25 bps above the repo rate (ceiling).
6ID: GK-ECON-00242
hardBanking & RBI
The 'Standing Deposit Facility' (SDF) introduced by the RBI in April 2022 serves what distinct operational function compared to the Reverse Repo rate?
Verified Explanation
SDF is an uncollateralized monetary policy tool empowering the RBI to absorb excess liquidity from the banking system without giving government securities in return, strengthening liquidity management.
7ID: GK-ECON-00431
mediumBanking & RBI
How many total members constitute the Monetary Policy Committee (MPC) of India responsible for fixing the benchmark policy repo rate?
Verified Explanation
Under Section 45ZB of the amended RBI Act 1934, the MPC consists of 6 members: 3 from the RBI (including the Governor as Chairperson) and 3 external experts appointed by the Central Government.
8ID: GK-ECON-00485
easyBanking & RBI
What is the interest rate at which the Reserve Bank of India lends short-term funds to commercial banks against government securities called?
Verified Explanation
Repo Rate (Repurchase Option rate) is the key policy interest rate at which the RBI lends money to commercial banks against eligible collateral.
9ID: GK-ECON-00082
easyBanking Rbi
The interest rate at which the Reserve Bank of India lends short-term funds to commercial banks against government securities is called what?
Verified Explanation
The Repo Rate is the primary policy rate used by the Monetary Policy Committee (MPC) to control liquidity and inflation.
10ID: GK-ECON-00209
easyBanking & RBI
What is the interest rate called at which commercial banks park their surplus liquidity with the Reserve Bank of India against eligible securities?
Verified Explanation
The Reverse Repo Rate is the interest rate offered by the RBI to commercial banks when they deposit surplus liquidity with the central bank.
11ID: GK-ECON-00417
easyBanking & RBI
What is the interest rate at which the Reserve Bank of India lends liquidity to commercial banks against government collateral called?
Verified Explanation
Repo Rate (Repurchase Option Rate) is the benchmark policy rate at which the central bank lends short-term funds to commercial banks against pledged government securities.
12ID: GK-ECON-00540
easyBanking & RBI
What is the term for the interest rate at which the Reserve Bank of India lends short-term funds to commercial banks against government securities?
Verified Explanation
The Repo (Repurchase Option) Rate is the key policy interest rate at which the RBI lends liquidity to commercial banks against eligible collateral.
13ID: GK-ECON-00675
hardBanking & RBI Monetary Policy
The External Benchmark Lending Rate (EBLR) regime made mandatory by the RBI in October 2019 linked retail and MSME floating rate loans to which external anchors?
Verified Explanation
RBI mandated all scheduled commercial banks (excluding RRBs) to link all new floating-rate personal, retail, and MSME loans to external benchmarks starting October 1, 2019. Permissible external benchmarks include the RBI Policy Repo Rate, 91-day or 182-day Treasury Bill yields, or any other benchmark rate published by Financial Benchmarks India Pvt. Ltd. (FBIL). This reform resolved sluggish transmission under the internal MCLR regime.
14ID: GK-ECON-00777
easyBanking & RBI Monetary Policy
Under RBI directives, which internal benchmark was introduced on 1 April 2016 to price floating-rate loans before moving to external benchmarks?
Verified Explanation
The Marginal Cost of Funds Based Lending Rate (MCLR) was introduced by the RBI effective 1 April 2016 to replace the Base Rate system. MCLR calculates loan interest rates based on the marginal cost of borrowing new deposits, negative carry on CRR, operating costs, and tenor premiums. In October 2019, the RBI mandated banks to link all new floating-rate retail and MSME loans to external benchmarks such as the policy repo rate.
15ID: GK-ECON-00866
easyBanking & RBI Monetary Policy
Under the Liquidity Adjustment Facility (LAF) framework of the RBI, what serves as the ceiling of the policy interest rate corridor?
Verified Explanation
Under the RBI's Liquidity Adjustment Facility (LAF) corridor, the Marginal Standing Facility (MSF) rate forms the upper ceiling, while the Standing Deposit Facility (SDF) rate constitutes the lower floor, with the Policy Repo Rate positioned in between. MSF allows banks to borrow emergency overnight funds by dipping into their statutory liquidity ratio (SLR) portfolio.
16ID: GK-ECON-00878
easyBanking & RBI Monetary Policy
Since October 2019, the Reserve Bank of India made it mandatory for commercial banks to link all new floating-rate retail and MSME loans to which interest rate regime?
Verified Explanation
In October 2019, the RBI mandated commercial banks to link all new floating rate retail loans (home, auto, personal) and MSME loans to an External Benchmark Lending Rate (EBLR). Standard benchmarks include the RBI Policy Repo Rate or Treasury Bill yields, ensuring faster and transparent transmission of monetary policy rate cuts to borrowers.
17ID: GK-ECON-00966
easyBanking & RBI Monetary Policy
Under the Reserve Bank of India's Liquidity Adjustment Facility (LAF) corridor framework, which facility sets the upper bound (ceiling) of the overnight interest rate corridor?
Verified Explanation
The Marginal Standing Facility (MSF) rate acts as the upper bound (ceiling) of the RBI's LAF corridor, while the Standing Deposit Facility (SDF) rate serves as the floor. The policy repo rate sits in the middle of this policy corridor, guiding overnight interbank call money rates.
18ID: GK-BANK-00002
mediumCommercial Banks, Payment Banks & SFBs
What rate of interest does the Reserve Bank of India charge when commercial banks borrow funds overnight against eligible government securities under the Liquidity Adjustment Facility (LAF)?
Verified Explanation
Repo Rate (Repurchase Option Rate) is the policy interest rate at which the RBI lends money to commercial banks against pledged government securities under the Liquidity Adjustment Facility.
19ID: GK-BANK-00232
hardFinancial Terms, Money Markets & Capital Instruments
Under the External Benchmark Based Lending Rate (EBLR) framework mandated by the RBI in 2019, which external benchmarks are banks permitted to choose from to link their floating rate retail and MSME loans?
Verified Explanation
Under the EBLR framework, banks can choose any of the following: (a) RBI Policy Repo Rate, (b) 91-day T-Bill yield, (c) 182-day T-Bill yield, or (d) Any other benchmark market interest rate produced by FBIL.
20ID: GK-BANK-00427
easyCommercial Banks, Payment Banks & SFBs
Which rate refers to the interest rate at which commercial banks borrow overnight funds from the RBI against government securities under the Liquidity Adjustment Facility (LAF)?
Verified Explanation
The Repo Rate (Repurchase Option rate) is the key policy interest rate at which the RBI lends short-term money to commercial banks against the collateral of approved government securities.
21ID: GK-ECON-00179
mediumBanking & RBI
What is the "Standing Deposit Facility" (SDF) introduced by the RBI in April 2022 as the floor of the Liquidity Adjustment Facility (LAF) corridor?
Verified Explanation
SDF allows the RBI to absorb surplus liquidity from commercial banks at a rate lower than the repo rate without the need to pledge government securities as collateral.
22ID: GK-ECON-00644
hardBanking & RBI
Under the Reserve Bank of India's liquidity framework, what is the 'Marginal Standing Facility' (MSF) designed for?
Verified Explanation
MSF was introduced in 2011, allowing scheduled commercial banks to borrow overnight funds from the RBI against SLR securities at an interest rate above the policy repo rate.
23ID: GK-ECON-00674
mediumBanking & RBI Monetary Policy
Under the Marginal Standing Facility (MSF) operationalized by the RBI in 2011, commercial banks can borrow overnight funds by dipping into which reserve asset?
Verified Explanation
The Marginal Standing Facility (MSF) was introduced in May 2011 to provide emergency overnight liquidity to scheduled commercial banks facing severe asset-liability mismatches. Under MSF, banks are permitted to borrow overnight funds against approved government securities by dipping into their prescribed SLR quota up to a specified percentage. The MSF interest rate is pegged at a markup above the policy repo rate.
24ID: GK-ECON-00768
easyBanking & RBI Monetary Policy
What does the acronym 'LAF' stand for in the monetary and liquidity framework of the Reserve Bank of India?
Verified Explanation
The Liquidity Adjustment Facility (LAF) is the primary monetary policy tool used by the RBI to manage day-to-day liquidity mismatches in the banking system. Introduced based on the recommendations of the Narasimham Committee on Banking Sector Reforms (1998), the LAF allows commercial banks to borrow funds through repo operations or deposit surplus funds with the RBI. The LAF corridor currently spans the Standing Deposit Facility (SDF) rate, the policy repo rate, and the Marginal Standing Facility (MSF) rate.
25ID: GK-ECON-00965
easyBanking & RBI Monetary Policy
Which liquidity management tool was instituted by the Reserve Bank of India in April 2022 to absorb surplus system liquidity without requiring collateral securities?
Verified Explanation
In April 2022, the RBI operationalised the Standing Deposit Facility (SDF) under the amended Section 17 of the RBI Act, 1934. The SDF allows the central bank to absorb uncollateralised liquidity from commercial banks at a rate 25 basis points below the policy repo rate, replacing fixed-rate reverse repo as the lower floor of the Liquidity Adjustment Facility (LAF) corridor.