"Global central bank rate hikes underscore persistent inflation risks"
Repo Rate
the rate at which the RBI lends short-term funds to commercial banks, its primary policy instrument.
Monetary Policy Committee (MPC)
six-member statutory body under the RBI Act, 2016, responsible for setting the repo rate to meet the inflation target.
India follows a statutory flexible inflation-targeting framework established under the RBI Act, 2016. This law gave the Monetary Policy Committee (MPC) the primary mandate of keeping CPI inflation at 4 per cent within a tolerance band of ±2 percentage points. The MPC has six members. Three come from the RBI, including the Governor. Three are external members appointed by the government. Decisions are taken by majority vote. The Governor holds a casting vote in case of a tie. The repo rate is the MPC's main instrument for influencing borrowing costs, aggregate demand, and inflation. The RBI publishes both the policy statement and detailed MPC minutes to enhance transparency and anchor public expectations.
The framework was designed to give monetary policy a clear, measurable goal. Before 2016, India had no formal numerical inflation target. The shift to inflation targeting was meant to build credibility, reduce inflation expectations, and bring India in line with global best practice. The repo rate became the operative signalling tool through which the RBI communicates its stance to financial markets and the broader economy.
Monetary policy works mainly through the real interest rate. The real rate is the nominal policy rate minus expected inflation. When the repo rate rises, market rates tend to follow. Borrowing becomes more expensive. Demand cools. Firms and households spend less. This reduces price pressure over time. But the effectiveness of rate hikes depends heavily on what is driving inflation in the first place.
Demand-led inflation responds well to rate increases. Supply-driven inflation, caused by crop shortfalls, administered price changes, or global energy price spikes, is far less responsive. In those cases, higher rates impose real costs on growth and employment without quickly resolving the underlying price pressures. This is a central dilemma for the RBI when food or fuel prices are the main source of inflation. …
An increase in the Bank Rate generally indicates that the
Indian Government Bond Yields are influenced by which of the following?
1.Actions of the United States Federal Reserve
2.Actions of the Reserve Bank of India
3.Inflation and short-term interest rates
Select the correct answer using the code given below.
Consider the following statements:
Statement-I: In the post-pandemic recent past, many Central Banks worldwide had carried out interest rate hikes.
Statement-II: Central Banks generally assume that they have the ability to counteract the rising consumer prices via monetary policy means.
Which one of the following is correct in respect of the above statements?
Consider the following statements about the MPC under the RBI Act, 2016: 1. It has six members. 2. Three members must be external to the RBI. 3. The Governor does not have a casting vote. Which of the statements is/are correct?
Which of the following channels transmit foreign central-bank rate hikes to domestic inflation in India?
Assertion (A): Negative real interest rates stimulate borrowing and can be inflationary. Reason (R): Real interest rate equals nominal policy rate minus expected inflation. Choose the correct answer.
Which of the following limit the effectiveness of monetary policy in controlling food inflation? 1. Supply shocks 2. Poor storage and logistics 3. Administered price changes
Match the following instruments with their primary role:
1.Repo rate
2.Federal funds rate
3.10-year government bond yield
A.Short-term domestic policy instrument
B.US short-term policy rate
C.Indicator of long-term market interest rates
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