Which of the following statements is/are correct regarding the monetary policy tools and stances of the Reserve Bank of India?
1. A reduction in the repo rate is generally intended to decrease the money supply in the economy.
2. A 'neutral' monetary policy stance indicates that the central bank can either cut or increase interest rates depending on incoming economic data.

Question

Accepted Answer

B) 2 only — Statement 1 is incorrect because a reduction in the repo rate lowers borrowing costs, which aims to increase the money supply and stimulate economic activity. Statement 2 is correct; a neutral stance means the RBI is not committed to only raising or only lowering rates, giving it the flexibility to move in either direction based on macroeconomic conditions.

RBI Cuts Repo Rate to 5.25 Percent

5th India-Malaysia Exercise HARIMAU SHAKTI