If the RBI decides to adopt an expansionist monetary policy, which of the following would it not do ? 1. Cut and optimize the Statutory Liquidity Ratio 2. Increase the Marginal Standing Facility Rate 3. Cut the Bank Rate and Repo Rate Select the correct answer using the code given below :

(a) 1 and 2 only
(b) 2 only ✓ UPSC's answer
(c) 1 and 3 only
(d) 1, 2 and 3

Why the answer is (b)

• An expansionist (accommodative) monetary policy aims to increase money supply and lower borrowing costs.

• Cutting the SLR (1) frees bank funds for lending, and cutting the Bank Rate and Repo Rate (3) makes borrowing cheaper — both are expansionary steps the RBI would take.

• Raising the Marginal Standing Facility rate (2) makes emergency borrowing by banks costlier, tightening liquidity — the RBI would not do this.

• The question asks what the RBI would NOT do, so only item 2 qualifies.

• Hence 2 only, option (b).

Why the other options are wrong

(a) 1 and 2 only: Cutting SLR is expansionary, so the RBI would do it.
(c) 1 and 3 only: Cutting SLR and rates are both expansionary actions.
(d) 1, 2 and 3: Items 1 and 3 are things the RBI would do.

Asked in the GS Paper I of the UPSC Civil Services Preliminary Examination 2020, held on 4 October 2020. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.