RBI and Monetary Policy Notes for SSC Exams

The Reserve Bank of India (RBI) is the central bank of India, and its monetary policy controls the money supply and the interest rates in the economy. Questions on repo rate, CRR, SLR and the Monetary Policy Committee are asked in almost every SSC General Awareness paper. These RBI and monetary policy notes for SSC explain the functions of the RBI and every policy tool in simple language with tables and practice questions.

Reserve Bank of India: Basic Facts

Functions of the RBI

• Issuer of currency: prints and controls the supply of notes.
• Banker to the government: keeps the accounts of the Central and the State Governments.
• Banker's bank: keeps the reserves of commercial banks and gives them loans.
• Regulator of banks: gives licences and supervises banks.
• Custodian of foreign exchange: manages the foreign exchange reserves and the rupee value.
• Monetary policy: controls inflation and credit.

What Is Monetary Policy?

Monetary policy is the policy of the central bank to control the money supply and the interest rates to keep prices stable and to support growth. Fiscal policy, on the other hand, is the policy of the government on taxes and spending.

Quantitative Tools of Monetary Policy

How the Tools Work

Qualitative Tools

• Margin requirement: the part of the value of security that a bank cannot lend.
• Moral suasion: the RBI requests or advises banks to follow a policy.
• Selective credit control: controls the loans given for particular purposes.

Monetary Policy Committee (MPC)

The current level of the repo rate changes often, so check the latest RBI announcement before the exam.

Quick Tips

• Learn the difference between repo (RBI lends) and reverse repo (RBI borrows).
• Remember CRR is kept with the RBI in cash, while SLR is kept with the banks themselves.
• Link a higher repo rate with lower inflation and slower growth.
• Check the latest repo rate and the name of the RBI Governor from current affairs.

Quick Revision Points

• The RBI was started on 1 April 1935 and nationalised in 1949.
• The RBI is the banker to the government and the banker's bank.
• Repo rate is the lending rate of the RBI to banks.
• CRR is kept with the RBI, and SLR is kept with the banks.
• The MPC has six members and is chaired by the Governor.

Practice Questions With Answers

1. In which year was the RBI established?
   Answer: 1935
2. Where is the headquarters of the RBI?
   Answer: Mumbai
3. What is the rate at which the RBI lends to banks called?
   Answer: Repo rate
4. Which ratio is kept by banks with the RBI in cash?
   Answer: Cash Reserve Ratio (CRR)
5. Which ratio is kept by banks in cash, gold or government securities?
   Answer: Statutory Liquidity Ratio (SLR)
6. Who is the first Indian Governor of the RBI?
   Answer: C. D. Deshmukh
7. How many members does the MPC have?
   Answer: Six
8. Who chairs the Monetary Policy Committee?
   Answer: The Governor of the RBI
9. What does the RBI do to reduce inflation?
   Answer: Raises the repo rate or CRR
10. Which note is not issued by the RBI?
    Answer: The one-rupee note

How to Practise This Chapter

Make a table of tools and their effect on loans and inflation, and revise it every week. Then solve questions from our practice papers, the free SSC quizzes and the previous year papers page. Read the next chapter, Five Year Plans and NITI Aayog, and see all topics on the Indian Economy notes page. For the price rise side, read Inflation: Types, Causes and Effects.

Frequently Asked Questions

What is the RBI?

The Reserve Bank of India is the central bank of India. It issues currency, controls credit and regulates banks.

When was the RBI established?

The RBI was established on 1 April 1935 and was nationalised on 1 January 1949.

What is monetary policy?

Monetary policy is the policy of the RBI to control the money supply and interest rates to keep inflation under control and support growth.

What is the repo rate?

The repo rate is the rate at which the RBI lends short-term money to banks. If it rises, loans become costly.

What is the reverse repo rate?

The reverse repo rate is the rate at which the RBI takes money from banks. It is lower than the repo rate.

What are CRR and SLR?

CRR is the share of deposits that banks keep with the RBI in cash. SLR is the share that banks keep with themselves in cash, gold or government securities.

What is the Monetary Policy Committee?

The MPC is a six-member committee of the RBI that decides the policy repo rate to meet the inflation target.

What is the inflation target of the RBI?

The inflation target is 4 per cent with a band of 2 to 6 per cent, based on the CPI.

What is the difference between monetary policy and fiscal policy?

Monetary policy is made by the RBI on money supply and interest rates. Fiscal policy is made by the government on taxes and spending.

What is open market operations?

Open market operations means buying and selling of government securities by the RBI to control the money supply.

How can I remember the RBI tools?

Learn each tool with its meaning and with its effect on loans and inflation, and revise the table every week.

How many questions come from the RBI in SSC exams?

Usually one or two questions come from the RBI and banking in SSC General Awareness papers, but the number changes from year to year.