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