Consider the following statements regarding instruments of monetary policy : 1. Standing deposit facility (SDF) rate was introduced in April 2022. 2. SDF rate replaced fixed reverse repo rate as the floor of the LAF corridor. Which of the statements given above is/are correct?
- A.1 only
- B.2 only
- C.Both 1 and 2
- D.Neither 1 nor 2
Correct answer
Explanation
The correct answer is C, Both 1 and 2. The RBI brought in the Standing Deposit Facility in April 2022 and made its rate the new floor of the policy corridor.
The Liquidity Adjustment Facility (LAF) corridor is the band within which the RBI keeps overnight interest rates. Its ceiling is the Marginal Standing Facility (MSF) rate and the policy repo rate sits in the middle. Until April 2022 the floor was the fixed-rate reverse repo, under which the RBI absorbed banks' surplus money by giving them government securities as collateral. The SDF, announced in the April 2022 policy and set 25 basis points below the repo rate, lets the RBI absorb surplus liquidity without giving any collateral, which frees its stock of securities. The fixed reverse repo rate still exists but is no longer the floor.
A and B each accept only one statement, though both are correct. D is wrong because neither statement is false.
Exam tip: LAF corridor today: SDF (floor), repo (policy rate), MSF (ceiling); SDF needs no collateral.
Practice Questions
View allSAUBHAGYA, a Central Government scheme, is related to
- A.providing cash money to women giving birth of single female child
- B.connecting kitchen of every household with piped cooking gas
- C.strengthening and augmenting infrastructure for piped water supply
- D.achieving universal household electrification in the country
Show answer
SAUBHAGYA, the Pradhan Mantri Sahaj Bijli Har Ghar Yojana, aimed to give an electricity connection to every household. The scheme was launched by the Ministry of Power in September 2017 and was carried out mainly through the Rural Electrification Corporation.
Read the full explanation →Which one of the following statements with reference to Jal Jeevan Mission is not correct?
- A.It was established in the year 2016.
- B.It aims to improve quality of life in rural areas.
- C.It is to provide functional tap water connections to every rural household.
- D.It is a centrally sponsored scheme.
Show answer
Jal Jeevan Mission was announced on 15 August 2019, not in 2016, so this is the statement that is not correct.
Read the full explanation →A country's fiscal deficit stands at ₹50,000 crores. It is receiving ₹10,000 crores through non-debt creating capital receipts. The country's interest liabilities are ₹1,500 crores. What is the gross primary deficit?
- A.₹48,500 crores
- B.₹51,500 crores
- C.₹58,500 crores
- D.None of the above
Show answer
Gross primary deficit is the fiscal deficit minus interest payments: 50,000 − 1,500 = ₹48,500 crores. The fiscal deficit is total expenditure minus total receipts other than borrowings, so it already takes account of non-debt capital receipts such as recovery of loans and disinvestment proceeds.
Read the full explanation →Which one of the following statements correctly describes the meaning of legal tender money ?
- A.The money which is tendered in courts of law to defray the fee of legal cases
- B.The money which a creditor is under compulsion to accept in settlement of his claims
- C.The bank money in the form of cheques, drafts, bills of exchange, etc.
- D.The metallic money in circulation in a country
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Legal tender is money that the law says must be accepted in payment of a debt. In India, banknotes issued by the Reserve Bank under the RBI Act, 1934 are unlimited legal tender: no one can refuse them for any amount.
Read the full explanation →Under the Kisan Credit Card scheme, short-term credit support is given to farmers for which of the following purposes ?
1. Working capital for maintenance of farm assets
2. Purchase of combine harvesters, tractors and mini trucks
3. Consumption requirements of farm households
4. Post-harvest expenses
5. Construction of family house and setting up of village cold storage facility
Select the correct answer using the code given below:
- A.1, 2 and 5 only
- B.1, 3 and 4 only
- C.2, 3, 4 and 5 only
- D.1, 2, 3, 4 and 5
Show answer
The short-term part of the Kisan Credit Card covers working capital for farm assets, household consumption needs and post-harvest expenses.
Read the full explanation →