With reference to the Bank Rate and its relationship with other RBI monetary policy instruments, consider the following statements: 1. The Bank Rate is now kept equal to the Marginal Standing Facility (MSF) rate, which is linked to the repo rate..2. The Bank Rate now acts as a penal rate for banks that fail to maintain their reserve requirements such as CRR and SLR. 3. The Bank Rate is used by the RBI to signal short-term monetary policy stance and is adjusted more frequently than the repo rate. Which of the statements given above is/are correct? |ForumIAS

[A] 1 and 2 only

[B] 2 and 3 only

[C] 1 and 3 only

[D] 1, 2 and 3

Answer: A

Notes:

Explanation:

Since February 2012, the Bank Rate has been realigned with the MSF rate, which is linked to the repo rate. This alignment ensures coherence in the interest rate corridor.
The Bank Rate now functions as a penal rate, especially used when banks fail to meet CRR/SLR requirements.
The Bank Rate is not a short-term policy signaling tool The repo rate is the main signaling instrument under the RBI’s revised monetary policy operating framework. The Bank Rate is adjusted less frequently and is now largely aligned with MSF for consistency.

Source- 11th NCERT: Economics: Indian Economic Development and TMH Indian Economy by Ramesh Singh

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