SSC
To combat high inflation, a central bank usually adopts which kind of monetary policy stance?
Answer (Detailed Solution Below)View answer ▾Hide ▴
Answer: Option B — Hawkish stance
Detailed Solution
A central bank's monetary policy stance describes its general attitude towards interest rates and the supply of money in the economy. The terms "hawkish" and "dovish" are commonly used in financial news to describe these attitudes.
A hawkish stance means that the central bank is mainly concerned about controlling inflation. It is willing to raise interest rates, reduce the supply of money and make credit costlier, even if this slows down economic growth. When borrowing becomes more expensive, people and businesses borrow and spend less, demand falls and price rise slows down. Hawkish measures include increasing the repo rate, increasing the cash reserve ratio (CRR) and selling government securities in the open market. This is also called a tight or contractionary monetary policy.
A dovish stance means that the central bank is more concerned about supporting economic growth and employment. It prefers lower interest rates and more liquidity, even if this allows somewhat higher inflation. This is also called a loose or expansionary policy.
The RBI describes its stance using terms such as:
- Accommodative: ready to cut rates or keep them low to support growth.
- Neutral: free to move rates in either direction depending on data.
- Withdrawal of accommodation or "calibrated tightening": moving towards tighter policy.
In India, monetary policy is decided by the six-member Monetary Policy Committee (MPC), set up in 2016 under the amended RBI Act, 1934. It is headed by the RBI Governor and meets at least four times a year (usually six). Its main tool is the policy repo rate. For example, in 2022-23, the MPC raised the repo rate from 4% to 6.5% to control inflation, and in 2025 it cut rates as inflation eased.
Why not the other options?
- ✗A dovish stance favours growth with lower interest rates.
- ✗An accommodative stance means readiness to lower rates or keep them low.
- ✗Quantitative easing is buying large amounts of assets to inject money, used to support growth, not fight inflation.
Quick tip
Remember: Hawkish = tight policy to fight inflation (raise repo rate, CRR); dovish = loose policy for growth; MPC = 6 members, set up 2016, headed by the RBI Governor.
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Inflation & Price Indices — Preparation
This question tests your understanding of Inflation & Price Indices, a key topic in the General Knowledge section. The detailed solution above uses a step-by-step approach to show the reasoning, and where available, a shortcut that helps you solve similar questions in under 90 seconds during the actual exam.
This topic covers inflation and deflation, the types and causes of inflation (demand-pull and cost-push), stagflation, the Consumer Price Index (CPI) and Wholesale Price Index (WPI), and the measures used to control inflation. Questions commonly ask which index the RBI uses for its inflation target (CPI combined), who publishes CPI and WPI, and what terms such as stagflation, deflation and disinflation mean. Remember that inflation reduces the purchasing power of money and generally benefits borrowers at the cost of lenders. Practise the inflation and price indices questions below, written in the style of the general awareness sections of exams such as SSC, banking, railways, CUET GAT, MAH CET and CLAT. Each question comes with a detailed explanation that adds related facts, so every question helps you revise more than one point.