Question
RBI is keeping the policy rate at a higher level for quite some time. Which of the following conditions may have led to such behaviour?
Select the correct answer using the code given below:
- Inflation in the economy is high
- Inflation expectation in the economy is high
Select the correct answer using the code given below:
Answer: Option B
Answer: (b)
RBI keeps the repo rate high or increases it when the inflation in the economy increases.
When "inflation expectation" of the people is high, i.e. they are expecting that in future inflation will increase, then such a behaviour of the people ultimately leads to higher inflation in the economy due to which RBI increases the repo rate.
So, both the statements are true.
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Answer: (b)
RBI keeps the repo rate high or increases it when the inflation in the economy increases.
When "inflation expectation" of the people is high, i.e. they are expecting that in future inflation will increase, then such a behaviour of the people ultimately leads to higher inflation in the economy due to which RBI increases the repo rate.
So, both the statements are true.
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