Monetary Policy and Banking — Prelims Strategy

Prelims Strategy

Separate target, policy rate and lending rate. The 4% target with 2–6% tolerance levels is an inflation framework, not a bank interest-rate corridor. The March 2026 notification applies from April 2026 to March 2031. The Central Government sets the target in consultation with the RBI; the MPC determines the policy rate under its statutory role.

For instruments, write whether liquidity is supplied or absorbed and whether collateral is involved. Repo provision and SDF absorption should not be reversed. Open-market purchases and sales affect system liquidity differently, while CRR is a reserve requirement. A correct description of one instrument can become a distractor when assigned to another.

Practise units:0.25 percentage points equals 25 basis points. A rate moving from 8% to 7.5% falls by 50 basis points, not by 50%. Distinguish liquidity from solvency and a funding problem from a capital loss. Use dated sources for current rates; illustrative calculations on this page are hypothetical and should not be memorised as live RBI settings.