RBI Flexible Inflation Targeting & Liquidity Management Tools

Source: RBI Bulletin / Mint

RBIMonetary PolicyInflation TargetingLiquidity

The Reserve Bank of India’s Monetary Policy Committee (MPC) reiterated the statutory inflation target of 4% Consumer Price Index (CPI) combined, within a tolerance corridor of ±2% (2% to 6%) established under Section 45ZB of the RBI Act, 1934.

Tool / Corridor	Mechanism	Impact on System Liquidity
Repo Rate	Rate at which RBI lends short-term to banks against G-Secs	Policy benchmark; rate hike absorbs liquidity
SDF (Standing Deposit Facility)	Uncollateralised absorption of surplus funds (Floor of LAF)	Drains excess overnight liquidity without giving G-Secs
MSF (Marginal Standing Facility)	Overnight borrowing against dipped SLR quota (Ceiling of LAF)	Provides emergency liquidity buffer to banks
CRR (Cash Reserve Ratio)	Mandatory percentage of NDTL maintained with RBI in cash	Directly locks/unlocks loanable bank funds

Practice Quiz for this Note

2 UPSC-pattern questions on this topic

Marking: +2.5 / −0.83

Question 1 of 2(0 answered, 2 remaining)

Question 1+2.5 / -0.83 Marks

The primary headline inflation metric targeted by the Reserve Bank of India’s Monetary Policy Committee is:

Question SwitcherClick any question to jump

Previous Note

Periodic Labour Force Survey (PLFS): Rise in Female LFPR