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Zorluk: ZorMonetary Policy Framework, RBI Mechanisms, Banking System, and Financial Markets

Consider the following statements regarding the monetary policy mechanisms and liquidity tools of the Reserve Bank of India (RBI):

1. The Standing Deposit Facility (SDF) functions as an uncollateralized liquidity absorption mechanism forming the floor of the Liquidity Adjustment Facility (LAF) corridor.
2. Commercial banks are permitted to dip into their mandatory Statutory Liquidity Ratio (SLR) portfolio within specified limits to borrow emergency overnight funds under the Marginal Standing Facility (MSF).
3. An increase in the Cash Reserve Ratio (CRR) leads to an expansion of the money multiplier and expands credit creation capacity in the banking system.

Which of the statements given above are correct?

  1. 1 and 2 onlyCevap
  2. B
    2 and 3 only
  3. C
    1 and 3 only
  4. D
    1, 2 and 3

Cevap

The combination '1 and 2 only' is correct because Statement 1 and Statement 2 correctly describe the operational features of SDF and MSF, while Statement 3 incorrectly states the effect of CRR on the money multiplier.
The option selecting statements 1 and 2 only is correct. Statement 1 is true because the SDF allows the RBI to drain surplus systemic liquidity without pledging government securities. Statement 2 is true because MSF provides penal rate borrowing where banks can utilize a portion of their Statutory Liquidity Ratio (SLR) securities. Statement 3 is false because increasing the CRR locks away a higher proportion of bank deposits, leading to credit contraction and a smaller money multiplier.

Adım Adım Çözüm

1
Analyze Statement 1 regarding the Standing Deposit Facility (SDF).
Statement 1 is correct.
The SDF was introduced by the RBI as an uncollateralized liquidity absorption tool operating at the base floor of the Liquidity Adjustment Facility corridor.
2
Analyze Statement 2 regarding the Marginal Standing Facility (MSF).
Statement 2 is correct.
Under MSF, scheduled commercial banks can borrow emergency overnight funds by dipping into their SLR securities up to a designated percentage of Net Demand and Time Liabilities (NDTL).
3
Analyze Statement 3 regarding Cash Reserve Ratio (CRR) and money multiplier.
Statement 3 is incorrect.
Money multiplier is inversely related to reserve requirements (m≈1CRRm \approx \frac{1}{CRR}). Increasing the CRR forces banks to hold more liquid cash reserves with RBI, reducing total loanable funds and contracting the money multiplier.

Anahtar Kavram

Standing Deposit Facility, Marginal Standing Facility, and Money Multiplier dynamics under RBI Monetary Framework
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Konular

Monetary Policy Framework, RBI Mechanisms, Banking System, and Financial Markets