On June 8, the Reserve Bank of India (RBI) released the results of its June policy meeting, with Governor generally expected to raise the repo rate once more in the fight against surging inflation. The policy repo rate was raised 50 basis points to 4.90 percent with immediate effect, as expected. As a result, the standing deposit facility (SDF) rate has been changed to 4.65 percent, while the marginal standing facility (MSF) rate has been adjusted to 5.15 percent, and the Bank Rate has been adjusted to 5.15 percent. RBI has increased the FY23 consumer price index (CPI) inflation forecast to 6.7 percent from 5.7 percent. Inflation is likely to remain above 6 percent in the first three-quarters of the current fiscal. Governor Shaktikanta Das said that the RBI’s steps would be “calibrated, focussed on bringing down inflation to target level". The global economy has been grappling with multi-decadal high inflation and sluggish growth, ongoing geopolitical tensions and sanctions, rising crude oil and other commodity prices, and lingering COVID-19-related supply chain bottlenecks, according to the RBI. The available data for April-May 2022 indicates a broadening of India's economic recovery, according to RBI Governor. Demand in cities is steadily improving, while demand in rural areas is gradually improving. Merchandise exports posted robust double-digit growth for the fifteenth month in a row during May while non-oil non-gold imports continued to expand at a healthy pace, pointing to the recovery of domestic demand. Also, the RBI has decided to allow UCBs to offer doorstep banking services to its customers on par with scheduled commercial banks in order to achieve regulatory uniformity across REs and to give the convenience of banking services to customers at their doorstep
Which of the following is NOT a quantitative means to control inflation in the economy?
Answer & explanation
Correct answer: option 2
Option 2: Moral suasion by the Reserve Bank of India
Moral suasion is not a quantitative measure but a qualitative measure to control inflation. It involves informal persuasion or influence exerted by the central bank on banks and financial institutions to follow certain policies or practices. While moral suasion can complement other monetary policy measures, it does not directly affect the money supply or the cost of borrowing, which are characteristic of quantitative measures to control inflation.
Quantitative measures directly affect the money supply or interest rates in the economy. They involve using numbers and statistics to control inflation. Reduction of bank rate (interest rate at which RBI lends to commercial banks) and decrease in reverse repo rate (interest rate at which RBI borrows from commercial banks) are both quantitative tools. Lowering these rates makes it cheaper for banks to borrow money, potentially increasing the money supply and influencing inflation.
Why the other options are Quantitative:
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Option 1 (Bank Rate): Changing the Bank Rate is a direct quantitative method. It's worth noting that to control inflation, the RBI usually increases rates (as mentioned in the passage where the repo rate was raised to 4.90%) to make borrowing more expensive.
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Option 3 (Reverse Repo Rate): This is part of the Liquidity Adjustment Facility (LAF), a standard quantitative tool used to absorb excess liquidity from the market.