Module: | Priority Sector, Consumer Protection & Digital Lending
Q88: During a period of high inflation, the RBI adopts a "Tightening" or "Hawkish" stance. Which of the following actions would be inconsistent (NOT align) with this stance?
✅ Correct Answer: C
The correct answer is C. During a period of high inflation, the RBI adopts a "Hawkish" (tightening) monetary policy stance, aiming to reduce the money supply and cool down aggregate demand.
Actions like increasing the Repo Rate (A), increasing the CRR (B), and reducing discretionary liquidity (D) are all consistent with this stance, as they restrict the flow of money.
Conversely, conducting an Open Market Purchase of Government Securities (C) involves the RBI buying bonds from the market and injecting fresh cash (liquidity) into the banking system.
Injecting liquidity is an expansionary ("Dovish") move that would exacerbate inflation, making it completely inconsistent with a tightening stance.
Actions like increasing the Repo Rate (A), increasing the CRR (B), and reducing discretionary liquidity (D) are all consistent with this stance, as they restrict the flow of money.
Conversely, conducting an Open Market Purchase of Government Securities (C) involves the RBI buying bonds from the market and injecting fresh cash (liquidity) into the banking system.
Injecting liquidity is an expansionary ("Dovish") move that would exacerbate inflation, making it completely inconsistent with a tightening stance.