What is the meaning of the italicized line in the passage 2 marks 1 RBI will adopt Accommodative mon...........

Economic and social issues (RBI) Monetary and fiscal policies

PASSAGE ON RBI’S LIQUIDITY MANAGEMENT FRAMEWORK

The Reserve Bank of India (RBI) adopted a new liquidity management framework in which there would be no fixed daily liquidity injection operations, but the central bank would act whenever the banking system requires money. The ______ will remain the operating target of the monetary policy, the RBI said, which means it will ensure enough liquidity to anchor the call rate at around the repo rate.

What is the meaning of the italicized line in the passage? (2 marks)

1. RBI will adopt Accommodative monetary policy.

2. RBI will adopt expansionary monetary policy.

3. RBI will adopt contractionary monetary policy.

4. The call rate inches above the repo rate, it would signal liquidity deficit and the central bank will bring its tools to infuse liquidity

5. If the call rate is below the repo rate, that would mean the banking system has surplus liquidity

This questions was previously asked in

RBI Grade B Phase 2 Exam (2021)

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1 and 3 only

2 and 3 only

3 and 4 only

4 and 5 only

None of the above

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Explanation:

Let's break down the statements:

- Statement 1: Accommodative monetary policy focuses on increasing the money supply to boost economic growth, not specifically what's described in the passage.

- Statement 2: Expansionary monetary policy also involves increasing the money supply, but the passage is about RBI's approach to call rates and liquidity management, not about expanding money per se.

- Statement 3: Contractionary policy reduces the money supply and is not what the passage describes.

- Statement 4: If the call rate rises above the repo rate, it indicates a liquidity deficit, prompting RBI to infuse liquidity. This directly relates to the passage's description.

- Statement 5: A call rate below the repo rate suggests surplus liquidity, aligning with RBI's role in managing liquidity as per the passage.

Correct Option: 4 - 4 and 5 only