Key Concepts & Self-Assessment15 Key Facts
Review key RBI Monetary Policy: Repo Rate, Reverse Repo, CRR, SLR & MPC Framework exam facts and rate your mastery to track revision.
Progress: 0/15 Rated 0 Mastered 0 Review Later
#1
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.
#2
India practices Flexible Inflation Targeting (FIT) targeting CPI headline inflation at 4% with an allowable tolerance band of 2% to 6%.
#3
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.
#4
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.
#5
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.
#6
The Cash Reserve Ratio (CRR), mandated under Section 42(1) of the RBI Act, 1934, requires scheduled banks to maintain a specified percentage of Net Demand and Time Liabilities (NDTL) as cash reserves with the RBI without interest.
#7
The Statutory Liquidity Ratio (SLR), governed by Section 24 of the Banking Regulation Act, 1949, requires commercial banks to maintain liquid assets in gold, unencumbered government bonds, or cash.
#8
Open Market Operations (OMOs) involve the outright purchase and sale of government securities by the RBI in secondary markets to inject or absorb durable rupee liquidity.
#9
The Liquidity Adjustment Facility (LAF) corridor is bounded by the Standing Deposit Facility (SDF) at the floor and the Marginal Standing Facility (MSF) at the ceiling.
#10
In 2016, the Urjit Patel Committee recommendations led to the statutory adoption of the Flexible Inflation Targeting (FIT) framework through an amendment to the RBI Act, 1934.
#11
Section 45ZN of the RBI Act stipulates that if headline CPI inflation breaches the 2% to 6% band for three consecutive quarters, the RBI must submit a formal failure report to Parliament.
#12
Operation Twist, modeled on the US Federal Reserve strategy, involves the simultaneous purchase of long-term government bonds and sale of short-term securities to flatten the yield curve.
#13
Targeted Long-Term Repo Operations (TLTROs) were deployed during financial stress to provide commercial banks with three-year liquidity at the repo rate for investment in corporate bonds.
#14
Variable Rate Reverse Repo (VRRR) auctions are fine-tuning liquidity management tools utilized by the RBI to absorb surplus inter-bank liquidity for tenures ranging from overnight to fourteen days.
#15
Selective credit control instruments empower the RBI under Section 21 of the Banking Regulation Act, 1949 to determine margin requirements on collateral and enforce credit rationing.
Subject Specialist Commentary
Analytical perspective & practical exam advice from the Master10 academic board
The Reserve Bank of India controls the supply of money and manages inflation through its monetary policy framework. Under flexible inflation targeting, the six-member Monetary Policy Committee sets policy interest rates to keep retail inflation around four percent. To manage banking liquidity, the RBI uses tools like the repo rate, which is the interest rate banks pay when borrowing short-term cash, along with reserve ratios that compel commercial banks to set aside funds safely.
For UPSC prelims and banking exams, clearly distinguish between quantitative tools and their statutory basis. A common question trap confuses the Cash Reserve Ratio with the Statutory Liquidity Ratio: remember that CRR is held strictly in cash with the RBI and yields no interest, while SLR can be held in government bonds or gold and earns returns. Also remember that the MPC was formed under Section 45ZB of the RBI Act 1934, operating within a target inflation band of two to six percent.
Related Knowledge Topics to Discover
Looking for more GK practice?
Explore 52,789+ questions across 65 General Knowledge categories.