Question of the Day – Monetary and fiscal policy
QOTD March 6,2026
With reference to the Monetary Policy Committee (MPC) meeting of December 2024, consider the following statements:
- The Reserve Bank of India kept the repo rate unchanged at 6.5%.
- The Cash Reserve Ratio (CRR) was reduced by 50 basis points to increase liquidity in the banking system.
- The reduction in CRR is expected to inject more than ₹1 lakh crore liquidity into the economy.
Which of the statements given above are correct?
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1, 2 and 3
(d) 1 only
Answer: (c)1, 2 and 3
Explanation:
Statement 1-Correct
The Monetary Policy Committee decided to keep the repo rate unchanged at 6.5%. This continued the pause in the interest-rate cycle while monitoring inflation trends and economic growth.
Statement 2-Correct
The RBI reduced the Cash Reserve Ratio by 50 basis points to 4% in order to improve liquidity conditions in the banking system.
Statement 3-Correct
The CRR reduction is expected to release roughly ₹1.16 lakh crore into the banking system, enabling banks to expand credit and lending.
Why in news–
The topic is in the news because the Reserve Bank of India (RBI) announced the outcomes of the December 2024 Monetary Policy Committee (MPC) meeting, highlighting several important policy decisions affecting inflation, growth, banking liquidity and financial regulation. The MPC decided to keep the repo rate unchanged at 6.5% for the 11th consecutive time while maintaining a neutral monetary policy stance to balance inflation control with economic growth.
At the same time, the RBI reduced the Cash Reserve Ratio (CRR) by 50 basis points to 4%, which is expected to inject about ₹1.16 lakh crore of liquidity into the banking system to support credit growth and economic activity.
News-RBI Monetary Policy Highlights: Top 10 announcements from MPC Meet Dec 2024, ETBFSI
There are more questions from this topic that you should practice to make your concepts stronger.
Practice Questions (PQ)
PQ1. Consider the following statements regarding recent RBI policy initiatives:
- RBI plans to introduce a Secured Overnight Rupee Rate (SORR) as a new benchmark interest rate.
- The SORR will be based on secured money market transactions such as repo and TREPS.
- The benchmark aims to improve transparency and reliability of interest rate benchmarks.
Which of the statements given above are correct?
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Answer: (d) 1, 2 and 3
Explanation
Statement 1-Correct
RBI proposed developing a Secured Overnight Rupee Rate as a benchmark rate for financial markets.
Statement 2-Correct
The benchmark will be derived from secured transactions such as basket repo and TREPS in the money market.
Statement 3-Correct
The objective is to improve reliability and transparency of benchmark interest rates used in financial contracts.
PQ2. With reference to digital finance initiatives announced by RBI, consider the following statements:
- Small Finance Banks have been allowed to provide pre-sanctioned credit lines through UPI.
- RBI is developing an AI-based system called MuleHunter.AI to detect fraudulent mule accounts.
- The RBI has proposed a framework for ethical use of Artificial Intelligence in the financial sector.
Which of the statements given above are correct?
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1, 2 and 3
(d) 1 and 3 only
Answer: (c) 1, 2 and 3
Explanation:
Statement 1-Correct
Small Finance Banks have been permitted to offer pre-sanctioned credit lines through UPI, expanding access to digital credit.
Statement 2-Correct
MuleHunter.AI is an AI/ML-based system developed by RBI Innovation Hub to identify mule bank accounts used in financial fraud.
Statement 3-Correct
RBI has proposed creating a framework for responsible and ethical use of artificial intelligence in financial services.
PQ3.Consider the following statements regarding agriculture credit reforms announced by RBI:
- The collateral-free agriculture loan limit was increased from ₹1.6 lakh to ₹2 lakh.
- The objective of this step is to improve credit access for small and marginal farmers.
- The loans under this limit are provided only through cooperative banks.
Which of the statements given above are correct?
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Answer: (a) 1 and 2 only
Explanation:
Statement 1-Correct
The RBI increased the collateral-free agricultural loan limit from ₹1.6 lakh to ₹2 lakh per borrower.
Statement 2-Correct
The move aims to enhance access to institutional credit for farmers and support agricultural activities.
Statement 3-Incorrect
Such loans are not restricted to cooperative banks. They can be provided through commercial banks, regional rural banks and cooperative banks.
Previous Year Question (UPSC Prelims)
With reference to the Reserve Bank of India, consider the following statements:
- It acts as banker to the Government of India.
- It manages the public debt of the Government of India.
- It regulates and supervises banks in India.
Which of the statements given above are correct?
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Answer: (d)1, 2 and 3
Explanation
Statement 1-Correct
RBI functions as banker to the Government by managing receipts, payments and banking transactions.
Statement 2-Correct
It manages the public debt of the Government by issuing government securities and treasury bills.
Statement 3-Correct
RBI regulates and supervises banks and financial institutions to maintain stability in the financial system.
