Consider the following statements:
- Statement-I: In the post-pandemic recent past, many Central Banks worldwide had carried out interest rate hikes.
- Statement-II: Central Banks generally assume that they have the ability to counteract the rising consumer prices via monetary policy means.
Which one of the following is correct in respect of the above statements?
Answer & explanation
Answer: (a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I
After the pandemic and the Russia-Ukraine war pushed prices up, central banks led by the US Federal Reserve raised policy rates in step with one another. They did so because they believe that dearer money cools demand and brings inflation down, so Statement-II explains Statement-I.
- ✓ Statement-I The Economic Survey 2022-23 records synchronised policy rate hikes by central banks across economies to curb inflation, with the US Federal Reserve raising rates at its fastest pace since the 1970s.
- ✓ Statement-II Monetary policy is the main tool central banks use against inflation; in India the RBI Act makes price stability the primary objective of monetary policy, with a flexible inflation target.
Remember · Inflation up → central bank raises policy rate (repo) → borrowing costlier → demand cools → prices ease. RBI: primary objective is price stability, keeping growth in mind.
Sources
- Economic Survey 2022-23, Ministry of Finance ↗ “Then, the central banks across economies led by the Federal Reserve responded with synchronised policy rate hikes to curb inflation.”
- Reserve Bank of India, Monetary Policy overview ↗ “RBI is entrusted with the responsibility of conducting monetary policy in India with the primary objective of maintaining price stability while keeping in mind the objective of growth.”
Question and answer: UPSC's official GS Paper I (2023, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). ·