Economy & Business MCQs - 2026-07-22

To absorb excess liquidity, the RBI typically uses reverse repo operations under the LAF, where banks park their surplus funds with the RBI and earn interest, effectively withdrawing liquidity from the system.

OMOs and LAF operations (including repo and reverse repo) are the primary, day-to-day tools used by the RBI to inject or absorb liquidity from the banking system, thereby influencing short-term interest rates and managing systemic liquidity.

The RBI's liquidity management aims to strike a balance, ensuring that there is enough liquidity for credit flow while preventing excessive liquidity that could fuel inflation or financial instability. This is crucial for supporting economic growth.

With inflation showing signs of moderation but still facing upside risks (like fuel prices), the RBI is likely to maintain a cautious monetary policy stance in July 2026, prioritizing price stability while assessing growth dynamics.

While food inflation has moderated, global energy market dynamics and domestic supply factors have kept 'Fuel and Light' prices at elevated levels in July 2026, contributing to overall inflation concerns.

As of July 2026, reports indicated that the moderation in CPI was largely due to a cooling down of food inflation, especially in categories like vegetables, and a relatively stable core inflation, which excludes volatile food and fuel prices.