UPSC Previous Year Question | Prelims GS | 2020

If the RBI decides to adopt an expansionist monetary policy, which of the following would it not do? 1. Cut and optimize the Statutory Liquidity Ratio 2. Increase the Marginal Standing Facility Rate 3. Cut the Bank Rate and Repo Rate

  1. 1 and 2 only
  2. 2 only
  3. 1 and 3 only
  4. 1, 2 and 3

Answer

Correct Answer

2 only

Explanation

An expansionist policy lowers SLR, the Bank Rate and the Repo Rate to raise liquidity and credit. Raising the MSF rate makes borrowing costlier and is a contractionary step, so RBI would not do statement 2.

Topics: economy, monetary policy, money & banking, rbi monetary policy instruments - expansionary policy