Read the following passage and answer the question:

The off-cycle meeting of the Monetary Policy Committee (MPC) on May 2 and May 4 and its decision to raise the repo rate to 4.4% sends a clear signal that the Reserve Bank of India (RBI) is committed to its mandate of keeping the consumer price index (CPI) inflation rate at 4% with an upper and lower band of plus or minus 2 percentage points. While stating that the policy remains accommodative, it has also expressed its intent to withdraw the accommodative stance. This policy response to global downward risks — including energy price volatility, supply chain disruptions due to geopolitical risks and macroeconomic uncertainties — is welcome. The RBI has re-calibrated the monetary policy corridor. As per the recent MPC off-cycle meeting, the standing deposit facility (SDF) rate stands adjusted to 4.15% and the marginal standing facility (MSF) rate and the Bank Rate to 4.65%. Raising of the cash reserve ratio (CRR) to 4.5% is expected to absorb liquidity of ₹87,000 crore. Till the eruption of conflict in Europe, what was expected on the monetary policy front was a gradual move away from an accommodative stance, spread over a year or so. But the continuing war has necessitated urgent steps. The RBI has thus responded to the charge that it is behind the curve on inflation. High inflation and low growth stare at the global economy, adding to uncertainty. The West is fearing stagflation. The International Monetary Fund (IMF) has revised its global growth forecast for 2022 downwards by 0.8 percentage point to 3.6%, in a short period of three months. The fact that the wholesale price index (WPI) inflation rate was continuing at two-digit numbers for a year and the CPI has remained above the upper band of 6% for three consecutive months has been a cause for concern. It is generally agreed that the WPI has a lagged effect on the CPI. So, the RBI will have to tighten the stance further if it is to bring down the CPI inflation rate within the band in the next few months. Hence, more tightening is on the way. High levels of inflation will have a deleterious effect on investment and growth in India. Similarly, the high rate of inflation with very high food and energy components erodes the purchasing power of the common man, and will have serious welfare implications.

Which of the following is true according to the data in the passage?

Question

Read the following passage and answer the question:

The off-cycle meeting of the Monetary Policy Committee (MPC) on May 2 and May 4 and its decision to raise the repo rate to 4.4% sends a clear signal that the Reserve Bank of India (RBI) is committed to its mandate of keeping the consumer price index (CPI) inflation rate at 4% with an upper and lower band of plus or minus 2 percentage points. While stating that the policy remains accommodative, it has also expressed its intent to withdraw the accommodative stance. This policy response to global downward risks — including energy price volatility, supply chain disruptions due to geopolitical risks and macroeconomic uncertainties — is welcome. The RBI has re-calibrated the monetary policy corridor. As per the recent MPC off-cycle meeting, the standing deposit facility (SDF) rate stands adjusted to 4.15% and the marginal standing facility (MSF) rate and the Bank Rate to 4.65%. Raising of the cash reserve ratio (CRR) to 4.5% is expected to absorb liquidity of ₹87,000 crore. Till the eruption of conflict in Europe, what was expected on the monetary policy front was a gradual move away from an accommodative stance, spread over a year or so. But the continuing war has necessitated urgent steps. The RBI has thus responded to the charge that it is behind the curve on inflation. High inflation and low growth stare at the global economy, adding to uncertainty. The West is fearing stagflation. The International Monetary Fund (IMF) has revised its global growth forecast for 2022 downwards by 0.8 percentage point to 3.6%, in a short period of three months. The fact that the wholesale price index (WPI) inflation rate was continuing at two-digit numbers for a year and the CPI has remained above the upper band of 6% for three consecutive months has been a cause for concern. It is generally agreed that the WPI has a lagged effect on the CPI. So, the RBI will have to tighten the stance further if it is to bring down the CPI inflation rate within the band in the next few months. Hence, more tightening is on the way. High levels of inflation will have a deleterious effect on investment and growth in India. Similarly, the high rate of inflation with very high food and energy components erodes the purchasing power of the common man, and will have serious welfare implications.

Which of the following is true according to the data in the passage?

Accepted Answer

**Solution:**

1. Option (a): The passage states that "It is generally agreed that the WPI has a lagged effect on the CPI," meaning WPI inflation affects CPI inflation with a delay, not that they have been staggered (which implies a different meaning). So, (a) is incorrect.

2. Option (b): The passage mentions that CPI inflation has remained above the upper band of 6% for three consecutive months and that "more tightening is on the way" to bring it down. It also states that "High levels of inflation will have a deleterious effect on investment and growth in India." This implies high inflation is expected to continue in the near future. Hence, (b) is correct.

3. Option (c): The passage says the IMF has revised its global growth forecast downwards by 0.8 percentage point (not 0.8%). The difference between percentage point and percent is important. So, (c) is incorrect.

4. Option (d): The passage states the SDF rate stands adjusted to 4.15%, MSF and Bank Rate to 4.65%, and CRR raised to 4.5%. However, it does not explicitly say that SDF and MSF rates were raised in the recent meeting, only that they stand adjusted. The passage explicitly mentions raising the CRR but not raising SDF and MSF rates. So, (d) is incorrect.

5. Option (e): The passage states the RBI "has also expressed its intent to withdraw the accommodative stance," meaning it intends to move away from accommodative policy, not adopt it. So, (e) is incorrect.

**Answer:** (b) High levels of inflation are projected in the near future in India.

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