On 21st December, 2022, the Reserve Bank of India has declared its monetary policy and as per the source https://rbidocs.rbi.org.in the extract of the the Minutes of the Monetary Policy Committee meeting has been given below.

December 5-07,2022 (Under Section 45ZL of the Reserve Bank of India Act, 1934) The fortieth meeting of the Monetary Policy committee, constituted under Section 45ZB of Reserve Bank of India Act-1934, was held during December 5-7, 2022. The Committee decided to increase the lending rate by 35 basis points to 6.25 percent with immediate effects. The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth.

On this basis of this article answer the question.

Identify the function of Central Bank which has been performed in the situation as mentioned in the passage given above.

Stabilising the economic disturbances

The correct answer is option (4) : Stabilising the economic disturbances

The passage describes a decision by the Monetary Policy Committee (MPC) of the Reserve Bank of India to increase the lending rate by 35 basis points to 6.25 percent. This decision indicates that the central bank is using its monetary policy tools to tighten the money supply and raise interest rates.

By increasing the lending rate, the central bank aims to achieve several objectives:

• Control Inflation: Higher interest rates can reduce consumer spending and business investments, thereby curbing demand-pull inflation.
• Stabilize the Economy: The central bank aims to ensure that inflation remains within the targeted range while supporting sustainable economic growth.
• Manage Economic Disturbances: Adjusting interest rates is a key tool to stabilize economic disturbances such as inflationary pressures or overheating of the economy.

The other functions mentioned in the options are not directly relevant to the situation described:

Banker to the Government: The RBI acts as the government's banker, managing its accounts and facilitating transactions. However, the passage doesn't focus on this specific role.

Banker to the Banks: The RBI acts as the banker's bank, providing them with liquidity and regulating their operations. While the repo rate decision affects banks, it's primarily aimed at influencing inflation, not simply managing bank operations.

Custodian of foreign exchange reserves: The RBI manages India's foreign exchange reserves, but the passage doesn't indicate any actions related to foreign exchange in this instance.