Which of the following statements is/are correct regarding the Monetary Policy Committee (MPC) framework in India?
1. The MPC operates under a flexible inflation targeting framework to maintain consumer price index (CPI) inflation at 4 percent with a tolerance band of plus or minus 2 percent.
2. Policy rates such as the Standing Deposit Facility (SDF) and Marginal Standing Facility (MSF) are completely independent of the benchmark repo rate.

Question

Accepted Answer

A) 1 only — Statement 1 is correct as the RBI Act mandates a 4 percent CPI target within a 2-6 percent band. Statement 2 is incorrect because the SDF and MSF rates are explicitly pegged to the benchmark repo rate, forming the floor and ceiling of the Liquidity Adjustment Facility (LAF) corridor.

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