If the RBI decides to adopt an expansionist monetary policy, which of the following would it not do ?
- Cut and optimize the Statutory Liquidity Ratio
- Increase the Marginal Standing Facility Rate
- Cut the Bank Rate and Repo Rate
Select the correct answer using the code given below :
This questions was previously asked in
UPSC CSP Previous Year Paper (2020)
1 and 2 only
Incorrect Answer1 and 3 only
Incorrect Answer1, 2 and 3
Incorrect AnswerExplanation:
- A lower SLR gives banks more room to lend. Hence statement 1st can't be an answer
Statement 2nd: MSF or Marginal Standing Facility enables banks to borrow funds from RBI (Reserve Bank of India) in emergency situations when their liquidity absolutely dries up.
- This short-term borrowing scheme facilitates the scheduled banks to get funds from the central bank of India overnight in case of serious cash shortage by offering their approved government securities.
- MSF rate or Marginal Standing Facility rate is the interest rate at which the Reserve Bank of India provides money to the scheduled commercial banks who are facing acute shortage of liquidity.
- If RBI decided to adopt an expansionist monetary policy, it will not increase the MSF rate.
Whenever the rate is lowered, it is expected that the banks would lower the lending rate which will help borrowers and enhance further lending and hence assist growth. Hence statement 3rd can't be an answer.
Hence option 2nd is correct.
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By: Abhipedia