Question
Consider the following Statements. (I) The
primary objective of the RBI’s monetary policy is to maintain price stability while keeping in mind the objective of growth. (II) RBI Act, 1934 provides the floor inflation rate at 4%. (III) The Monetary Policy committee is formed by the RBI as per the provisions of RBI Act.Solution
Monetary policy refers to the policy of the central bank with regard to the use of monetary instruments under its control to achieve the goals specified in the Act. The primary objective of the RBI’s monetary policy is to maintain price stability while keeping in mind the objective of growth. Price stability is a necessary precondition to sustainable growth. The amended RBI Act, 1934 also provides for the inflation target (4% +-2%) to be set by the Government of India, in consultation with the Reserve Bank, once in every five years. Hence the floor inflation rate is 2%. MPC is constituted by the Central Government.
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