RBI's Monetary Policies: Before 2020-Corona Flashcards
What is the repo rate?
The repo rate is the interest rate at which the Reserve Bank of India (RBI) lends money to commercial banks.
How does the RBI use the repo rate to influence the economy?
The RBI can increase or decrease the repo rate.
Increasing the repo rate makes borrowing more expensive for banks, leading to higher interest rates for consumers and businesses. This can help to control inflation.
Decreasing the repo rate makes borrowing cheaper, stimulating economic activity and potentially boosting growth.
What was the RBI’s monetary policy stance in 2018? Why?
The RBI’s stance in 2018 was “calibrated tightening.” This was due to concerns about high inflation.
How did the RBI’s monetary policy stance change in 2019? Why?
The RBI shifted to an “accommodative” stance in 2019. This was done to support economic growth as inflation fell below target levels.
What are the primary goals of the RBI’s monetary policy?
The RBI’s monetary policy aims to achieve:
Price stability: Maintaining low and stable inflation.
Economic growth: Supporting sustainable economic growth.
What were the key economic challenges during the 2020-2021 Corona era?
The Corona era was marked by:
Supply chain disruptions due to lockdowns, leading to shortages of goods and services.
Rising inflation, making goods and services more expensive.
An overall economic slowdown.
Why wasn’t increasing interest rates a suitable solution during the Corona era?
Increasing interest rates (making loans expensive) would have done the following:
Further slowed down demand and economic activity.
Not addressed the root cause of inflation, which was supply-side disruption.
What policy actions did the RBI take during the 2020-2021 Corona era?
The RBI did the following:
**Decreased the Repo Rate to 4%: ** Making it cheaper for banks to borrow from the RBI, encouraging them to lend to businesses and consumers.
**Decreased the Cash Reserve Ratio (CRR) to 3%: ** Increasing the amount of money banks had available to lend.
What was the goal of the RBI’s actions during the Corona era?
The RBI aimed to:
Boost demand and consumer spending to counter the economic slowdown.
Provide businesses with access to cheaper credit.
What was the RBI’s monetary policy stance during the 2020-2021 Corona era?
The RBI adopted an “accommodative” stance to support the economy during the crisis.
What does the term “calibrated tightening” mean in the context of monetary policy?
Calibrated tightening refers to a gradual and measured increase in interest rates to control inflation without causing severe disruptions to economic growth.
Explain the term “accommodative stance” used in monetary policy.
An accommodative stance implies a central bank’s willingness to lower interest rates and increase liquidity to support economic growth, even if it risks some increase in inflation.
