With reference to the Monetary Policy Committee (MPC), consider the following statements: 1. When inflation surpasses the upper limit, the MPC lowers the Statutory Liquidity Ratio (SLR) to curb inflation. 2. The MPC's decisions are binding on the Reserve Bank of India (RBI). 3. If the MPC fails to meet the inflation target for three consecutive quarters, then it must submit a report to the Parliament explaining the reasons for the failure. How many of the statements given above are correct? |ForumIAS

Q. With reference to the Monetary Policy Committee (MPC), consider the following statements:
1.When inflation surpasses the upper limit, the MPC lowers the Statutory Liquidity Ratio (SLR) to curb inflation.
2.The MPC’s decisions are binding on the Reserve Bank of India (RBI).
3.If the MPC fails to meet the inflation target for three consecutive quarters, then it must submit a report to the Parliament explaining the reasons for the failure.
How many of the statements given above are correct?

[A] Only one

[B] Only two

[C] All three

[D] None

Answer: A

Notes:

Explanation –

Statements 1 and 3 are incorrect. The MPC primarily uses the policy repo rate to manage inflation, not the Statutory Liquidity Ratio (SLR). The SLR is a tool used by the Reserve Bank of India (RBI) for regulating liquidity and ensuring that banks maintain a certain percentage of their net demand and time liabilities in safe and liquid assets. If the MPC fails to meet the inflation target for three consecutive quarters, it must submit a report to the central government, not Parliament.

Statement 2 is correct. According to Section 45ZB of the RBI Act, the decisions made by the MPC regarding policy rates are binding on the RBI.

Source: AIR

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