Prelims 2020 · Economy · Question 87
If the RBI decides to adopt an expansionist monetary policy, which of the following would it not do?
- Cut and optimise 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:
Answer
2 only
1. Cut and optimise the Statutory Liquidity Ratio — Lowering SLR frees more funds with banks for lending, which supports an expansionary monetary stance. Verdict: RBI would do this; so this is not the correct statement.
2. Increase the Marginal Standing Facility Rate — Raising MSF makes emergency borrowing costlier for banks and is contractionary, not expansionary. Verdict: RBI would not do this.
3. Cut the Bank Rate and Repo Rate — Reducing these policy rates lowers borrowing costs and encourages credit expansion. Verdict: RBI would do this; so this is not the correct statement.
Hence, only Statement 2 is something RBI would not do under an expansionist monetary policy.