Daily Static Quiz Prelims Practice 2027
Option (d) is correct — the Repo (Repurchase) Rate is the rate at which the RBI lends overnight or short-term funds to commercial banks against the collateral of government and other approved securities, and it is the key policy rate under the Liquidity Adjustment Facility. Option (a) reverses the definitions, since the Reverse Repo Rate is the rate at which the RBI borrows from banks and absorbs liquidity. Option (b) is wrong because a Repo Rate hike makes borrowing costlier — it is a contractionary tool used to curb credit flow and control inflation. Option (c) inverts the corridor, as the Repo Rate forms the ceiling and the Reverse Repo (now the Standing Deposit Facility) rate forms the floor.
- Treasury Bills (T-Bills)
- Commercial Paper (CP)
- Certificate of Deposit (CD)
- Call Money
Only Treasury Bills are issued by the Government of India, through the RBI, to meet short-term fiscal requirements — they come in 91-day, 182-day and 364-day maturities and are zero-coupon instruments sold at a discount. Commercial Paper is issued by corporates, primary dealers and financial institutions, while Certificates of Deposit are issued by scheduled commercial banks and financial institutions. Call Money is not an instrument at all but the inter-bank overnight lending mechanism, so statements 2, 3 and 4 are all outside the government's issuance.
- The MPC was constituted under Section 45ZB of the Reserve Bank of India Act, 1934, as amended in 2016.
- The MPC consists of six members — three from the RBI (including the Governor as Chairperson) and three external members appointed by the Government.
- Decisions of the MPC are taken by a simple majority, and in the event of a tie, the RBI Governor has a casting vote.
- The primary objective of the MPC is to maintain price stability while keeping in mind the objective of growth.
All four statements are correct. The MPC was created by inserting Section 45ZB into the RBI Act, 1934 through the Finance Act, 2016, institutionalising flexible inflation targeting in India. It has six members — the Governor as Chairperson, the Deputy Governor in charge of monetary policy, one RBI officer, and three external experts nominated by the Central Government — with each member holding one vote and the Governor exercising a casting vote in case of a tie. Under Section 45ZA the mandate is to maintain price stability, with CPI inflation targeted at 4% within a ±2% band, while keeping in mind the objective of growth.
The SDF was introduced by the RBI in April 2022 as an additional liquidity absorption tool, and its defining feature is that the RBI takes in surplus funds from banks without offering government securities as collateral — unlike the Reverse Repo, which is collateralised. Set 25 bps below the Repo Rate, the SDF rate now forms the floor of the LAF corridor, replacing the Reverse Repo Rate in that role. Option (b) is wrong because deposits are accepted at the SDF rate, not the Repo Rate, and option (c) misdates it to 1991. Option (d) confuses it with the Marginal Standing Facility, which is an emergency borrowing window, whereas the SDF is purely an absorption instrument.
In the post-April 2022 framework, the Marginal Standing Facility rate is set at Repo Rate plus 25 bps and forms the ceiling of the corridor, serving as the emergency borrowing window for banks. The Repo Rate sits in the middle as the policy rate, while the Standing Deposit Facility rate at Repo minus 25 bps forms the floor and absorbs excess liquidity. This gives the descending order MSF > Repo > SDF, making (a) correct, while options (b), (c) and (d) either revert to the pre-2022 structure or scramble the hierarchy.
