Question

Which of the following is an instrument of monetary policy of RBI?

I. Reverse Repo Rate

II. Corridor

1. Both I and II
2. Only II
3. Only I
4. Neither I nor II

Answer 1

Correct Answer - Option 1 : Both I and II

The correct answer is Both I and II.

• The Reserve Bank of India (RBI) is vested with the responsibility of conducting monetary policy.
• The primary objective of monetary policy is to maintain price stability while keeping in mind the objective of growth. Price stability is a necessary precondition to sustainable growth.
• There are several direct and indirect instruments that are used for implementing monetary policy-
  • Repo Rate
  • Reverse Repo Rate
  • Liquidity Adjustment Facility
  • Marginal Standing Facility
  • Corridor
  • Bank Rate
  • Cash Reserve Ratio
  • Statutory Liquidity Ratio
  • Open Market Operations
  • Market Stabilisation Scheme

• Reverse Repo Rate: 
  • The reverse repo rate is the short-term borrowing ​rate at which RBI borrows money from commercial banks. 
• Corridor: 
  • The Marginal Standing Facility (MSF) rate and reverse repo rate determine the corridor for the daily movement in the weighted average call money rate.