Interest rates & monetary policy: how do they work?

interest rates & monetary policy: how do they work?

Level - ADVANCE

Monetary policy can be used to impact growth, exchange rates or market liquidity. Watch this video to understand how RBI's multiple objectives and time lag in the transmission process make it difficult to take positions on the direction of interest rates.

AUTHOR(S): Deepa Vasudevan

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Interest Rates & Monetary Policy: How do they work?

 Monetary policy can be used to impact growth, exchange rates or market liquidity. Watch this video to understand how RBI's multiple objectives and time lag in the transmission process make it difficult to take positions on the direction of interest rates.

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    1.The money market corridor is defined by the



  • Call money and repo rate
  • Repo rate and reverse repo rate
  • Repo rate and MSF rate
  • 2.The impact of interest rate cuts on the economy depends on



  • Trends in inflation
  • Efficient transmission through lower lending rates
  • Market perception of future rate cuts
  • 3.The typical monetary policy response to reduce inflationary pressures is to



  • Raise interest rates
  • Hold interest rates constant
  • Reduce interest rates
  • 4.Which feature creates uncertainty in predicting monetary policy arises due to



  • Multiple policy rates
  • Non-transparent communication by policy makers
  • Prioritisation of different policy objectives at different times
  • 5.An easy monetary policy is expected to



  • Increase growth rates
  • Reduce inflation
  • Lead to exchange rate appreciation
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