The graph given below indicates the changes in key policy rates made by the Central Bank several times in a year: Which one of the following can be the most likely reason for the Central Bank for such an action?
The graph given below indicates the changes in key policy rates made by the Central Bank several times in a year:
Which one of the following can be the most likely reason for the Central Bank for such an action?
Options
a.
Encouraging foreign investment
b.
Increasing the liquidity
c.
Encouraging both public and private savings
d.
Anti-inflationary stance
Correct answer
Explanation
Whenever the Central Bank resists policy rates, it is a way to suck out liquidity from the system. Normally this is due to the central bank expectation of rising inflation. Hence a continuously rising repo rate indicates an anti-inflationary stance. Hence option d is correct.
