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    Question

    Under Section 45ZB of the RBI Act, 1934 (inserted by the

    Finance Act, 2016), the Monetary Policy Committee (MPC) is constituted to determine the Policy Rate. Which of the following correctly describes the "Policy Rate" as defined in the RBI Act, 1934?
    A The rate at which RBI lends to commercial banks under the Marginal Standing Facility Correct Answer Incorrect Answer
    B The rate for repo-transactions under sub-section (12AB) of Section 17 Correct Answer Incorrect Answer
    C The Bank Rate published under Section 49 Correct Answer Incorrect Answer
    D The rate of interest on Government Securities held by scheduled banks Correct Answer Incorrect Answer

    Solution

    Explanation:
    The term "Policy Rate" isĀ  explicitly defined Ā in Section 2(cccci) of the RBI Act, 1934 (inserted by the Finance Act, 2016 Act 28 of 2016) as:Ā "Policy Rate means the rate for repo-transactions under sub-section (12AB) of section 17."Ā This definition is critical because theĀ  MPC's primary function under Section 45ZB is to determine this Policy Rate Ā to achieve the inflation target. Option A refers to the MSF rate, which is different. The repo rate under Section 17(12AB) is theĀ  operative policy rate Ā and the MPC's decision-making is centered on it.

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