What was the policy action undertaken by the MPC during its meeting in April 2025?
Direct Answer
Policy Repo rate cut by 25 bps and stance changed from neutral to accommodative.
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Review concise direct answers and the essential concept behind each question. Use the original MCQ practice set for exam-style testing.
Which one of the following recommendations was not made by the IWG constituted by RBI to review the extant liquidity management framework?
Direct Answer
daily minimum requirement of 90 per cent of the prescribed cash reserve ratio (CRR) reduced to 85 per cent.
Which one of the following best explains the concern regarding the increasing role of Non-Bank Financial Intermediaries (NBFIs)?
Direct Answer
Greater interconnectedness between banks and NBFIs could amplify systemic risks.
Which one of the following best captures the overall policy message?
Direct Answer
Policymakers should remain vigilant to evolving risks arising from macroeconomic uncertainty, technology, climate risks and interconnectedness.
When global disinflation is described as proceeding at an "uneven pace" across advanced and emerging economies, it conceptually signifies that:
Direct Answer
Different economies face distinct domestic structural dynamics, wage growth paths, and energy exposures that complicate their inflation trajectories
In the context of monetary transmission, what is a primary reason commercial banks might aggressively raise term deposit rates even during a policy easing cycle?
Direct Answer
To bridge a persistent funding gap arising from sustained credit growth outpacing deposit growth
In decomposing monetary policy transmission to bank lending rates, the term "composition effect" in the Weighted Average Lending Rate (WALR) refers to:
Direct Answer
Shifts in the proportional share or mix of different loan categories within a bank's total credit portfolio
When an economy exhibits robust credit growth alongside an expansion in non-bank financing sources, it typically indicates:
Direct Answer
Favourable financial conditions and diverse funding channels actively supporting real economic activity
Why are adjustments to term deposit rates generally stickier or subject to more friction during a policy easing cycle compared to overnight money market rates?
Direct Answer
Term deposits represent fixed-rate long-term contractual liabilities that reprice only upon maturity, alongside competing funding pressures
What distinguishes a Variable Rate Repo (VRR) from a Variable Rate Reverse Repo (VRRR) from the perspective of systemic liquidity management?
Direct Answer
VRR injects transient liquidity into the banking system, while VRRR absorbs excess transient liquidity
Central banks warn that maintaining an excessive liquidity surplus over a prolonged period runs the risk of:
Direct Answer
Distorting risk perceptions, driving short-term interest rates to ultra-low levels, and potentially engendering asset price bubbles
Which combination of factors would typically cause a steepening of a sovereign bond yield curve at the longer end?
Direct Answer
Increased long-term bond supply (including state-level issuances) paired with a moderation in demand from key institutional investors
In debt consolidation and sovereign liability management strategies, the primary objective of conducting "switch auctions" is to:
Direct Answer
Smooth out and prolong the maturity profile of outstanding debt by exchanging short-term maturing papers for longer-term securities
How does a widening of the "inter-state spread" of cut-off yields on state government securities conceptually reflect market dynamics?
Direct Answer
It indicates shifting investor differentiation regarding the fiscal health, supply volumes, or liquidity profiles of different states
If a central bank deliberately reduces the weighted average maturity (WAM) of fresh sovereign debt issuances, it is most likely responding to:
Direct Answer
Shifting demand conditions and a desire to mitigate duration risks or hardening pressures at the longer end of the curve
An increase in the corporate bond risk premium—defined as the spread of corporate bond yields over government securities of comparable maturities—is typically driven by:
Direct Answer
Evolving corporate earnings profiles, mixed quarterly performance, and heightened risk aversion among market investors.
In corporate debt markets, if the primary issuance of listed bonds in the domestic market declines due to rising costs, what structural substitution typically occurs?
Direct Answer
Corporates shift their financing mix toward commercial bank borrowings, private placements, or alternative non-bank sources
Why does an escalation in a major regional geopolitical conflict typically put depreciation pressure on emerging market currencies?
Direct Answer
It drives safe-haven capital flows toward dominant global reserve currencies and heightens broad investor risk aversion
How do central banks typically use asymmetric fan charts, scenario analysis, and sensitivity templates in their official policy communications?
Direct Answer
To illustrate the balance of risks, skewness, and underlying uncertainty surrounding future growth and inflation trajectories
Which macroeconomic combination is most effective at supporting private consumption and fostering resilient domestic growth during a period of global trade frictions?
Direct Answer
Robust domestic credit demand, structural reforms, and supportive private consumption bolstered by tax-rate rationalizations or calibrated policy easing
A salary-earners' UCB has deposits above Rs. 10,000 crore. Under the four-tier framework, how is it classified?
Direct Answer
Tier 1, because all salary-earners' UCBs are Tier 1 irrespective of deposit size.
Which statement correctly describes large borrowal accounts in UCBs?
Direct Answer
Their share in total UCB lending declined to 23.4%, but they still contributed about one-third of total UCB GNPAs.