The Monetary Policy Committee was given statutory basis by amending the Reserve Bank of India Act through which law?
- A.The Finance Act, 2016
- B.The Banking Regulation Act, 1949
- C.The Fiscal Responsibility and Budget Management Act, 2003
- D.The Foreign Exchange Management Act, 1999
Correct answer
Explanation
The correct answer is A, the Finance Act, 2016. It amended the Reserve Bank of India Act, 1934 to insert the provisions on the inflation target and on the Monetary Policy Committee, so that the policy rate is now set by a committee and not by the Governor alone, and the framework of flexible inflation targeting became law.
Option B, the Banking Regulation Act, 1949, gives the Bank its powers to license, regulate and supervise banks and prescribes the statutory liquidity ratio, but it does not deal with the Committee. Option C, the Fiscal Responsibility and Budget Management Act, 2003, sets targets for the fiscal deficit and government debt, which is fiscal and not monetary policy, and it is the usual trap here. Option D, the Foreign Exchange Management Act, 1999, replaced the older foreign exchange law and governs transactions in foreign exchange.
Read the full article: RBI and Monetary Policy: Functions, MPC and Credit Control
Practice Questions
View allThe Reserve Bank of India was established on the recommendation of which commission?
- A.The Hilton Young Commission
- B.The Chamberlain Commission
- C.The Fowler Committee
- D.The Narasimham Committee
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This body, formally the Royal Commission on Indian Currency and Finance, reported in 1926 and recommended the creation of a central bank separated from the government.
Read the full explanation →The Reserve Bank of India was nationalised with effect from
- A.1 April 1935
- B.1 January 1949
- C.15 August 1947
- D.19 July 1969
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The Bank began as a shareholders' institution, and the Reserve Bank (Transfer to Public Ownership) Act, 1948 transferred its shares to the central government with effect from the first day of 1949, since when it has been fully owned by the Government of India.
Read the full explanation →The repo rate is the rate at which
- A.Commercial banks park their surplus funds with the Reserve Bank
- B.The Reserve Bank lends short term funds to commercial banks against government securities
- C.A bank lends to its most creditworthy customers
- D.The government borrows from the open market
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In a repurchase agreement a bank sells government securities to the Reserve Bank and agrees to buy them back the next day at a fixed price; the difference is the interest, and the rate is the repo rate.
Read the full explanation →How many members does the Monetary Policy Committee of India have?
- A.Four
- B.Five
- C.Six
- D.Seven
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Three of them come from the Reserve Bank, the Governor as chairperson, the Deputy Governor in charge of monetary policy and an officer of the Bank nominated by the Central Board, and three are appointed by the central government from among persons of ability and integrity with knowledge of economics…
Read the full explanation →The cash reserve ratio that banks must maintain with the Reserve Bank is prescribed under
- A.Section 42 of the Reserve Bank of India Act, 1934
- B.Section 24 of the Banking Regulation Act, 1949
- C.Section 22 of the Reserve Bank of India Act, 1934
- D.The Foreign Exchange Management Act, 1999
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It requires every scheduled bank to keep with the Reserve Bank a cash balance calculated on its net demand and time liabilities, and this proportion is the cash reserve ratio.
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