Economy & Business MCQs - 2026-08-15

The Monetary Policy Committee (MPC) is a statutory body of the RBI entrusted with the responsibility of fixing the benchmark policy interest rate (repo rate) to achieve the inflation target while keeping in mind the objective of growth.

When the RBI prioritizes controlling inflation, it typically adopts a tighter monetary policy (e.g., increasing interest rates). This makes borrowing more expensive, reduces demand, and can lead to a slowdown in economic growth in the short term.

The primary objective of the Monetary Policy Committee (MPC) of the RBI is to maintain price stability while keeping in mind the objective of growth. Price stability is considered a necessary precondition for sustainable growth.

To curb inflation, the RBI typically tightens monetary policy. Increasing the Cash Reserve Ratio (CRR) reduces the amount of money banks have to lend, thereby reducing liquidity in the system and curbing inflation. Reducing the Repo Rate, buying government securities, and decreasing SLR would inject liquidity and be inflationary.

The Government of India, in consultation with the RBI, has set a medium-term inflation target of 4% with a tolerance band of +/- 2%. This means the target range is 2% to 6%. This framework is expected to remain consistent in 2026.

The Reserve Bank of India (RBI) primarily uses the Consumer Price Index (CPI) as its key measure for monitoring retail inflation and for its inflation targeting framework.