UPSC Current Affairs Quiz, 21 October 2026

Explanation

Statement 1 is correct: The MPC has six members — the RBI Governor (chairperson), the RBI Deputy Governor in charge of monetary policy, one RBI officer nominated by the Central Board, and three external members appointed by the Government of India. This composition is mandated under Section 45ZB of the RBI Act, 1934. Statement 2 is also correct: Under the flexible inflation targeting (FIT) framework adopted in India, the inflation target is 4% CPI with a tolerance band of +/- 2 percentage points — meaning a lower band of 2% and an upper band of 6%. Statement 3 is incorrect: While the Governor does hold a casting vote in the event of a tie, MPC members are NOT required to vote identically on the policy rate and the monetary policy stance. These are treated as separate decisions. This is clearly illustrated by the October 2026 MPC meeting, where all six members unanimously voted to hike the repo rate by 25 bps, yet two members — Dr. Nagesh Kumar and Prof. Ram Singh — voted against shifting the stance from neutral to calibrated tightening. The dissenting members supported the rate action but opposed the stance change, demonstrating that votes on the rate and stance are independently cast.

Explanation

Statement 1 is correct. The Madden–Julian Oscillation (MJO) is a well-established intraseasonal climate mode that travels eastward along the equatorial region roughly every 30–60 days. Its active phase, when it passes over the Indian Ocean and South Asian region, enhances atmospheric convection and can intensify monsoon rainfall, while its suppressed phase does the opposite. Statement 2 is correct. A positive Indian Ocean Dipole occurs when the western Indian Ocean is anomalously warmer than the eastern Indian Ocean. This configuration draws moisture-laden winds towards the Indian peninsula and East Africa, increasing the likelihood of above-normal rainfall over India. A negative IOD does the reverse. Statement 3 is incorrect. El Niño warms the central and eastern Pacific, which shifts the Walker Circulation eastward, enhancing convection over the eastern Pacific and the Maritime Continent (the Indonesia–Philippines region) while simultaneously suppressing convection over the Indian Ocean and the Indian subcontinent. This typically leads to below-normal monsoon rainfall over India — the opposite of what Statement 3 claims.

Explanation

The MSP framework in India works through a two-tier process: the Commission for Agricultural Costs and Prices (CACP), a statutory advisory body, recommends MSPs based on production costs, demand-supply conditions, and other factors. The final approval rests with the Cabinet Committee on Economic Affairs (CCEA), chaired by the Prime Minister. This mechanism applies to all mandated crops. MSPs are determined separately for kharif and rabi marketing seasons. Rabi oilseeds such as rapeseed-mustard and safflower are among the crops mandated under the MSP framework, making both statements correct.

Explanation

Statement 1 is incorrect. The RBI's stated policy is to curb excessive or disorderly volatility in the exchange rate — not to eliminate volatility altogether or to defend a specific exchange-rate level. This is a well-established distinction in Indian monetary policy: the RBI is a 'managed float' regime participant, not a fixed-rate defender. Conflating 'curbing excessive volatility' with 'targeting a fixed band' misrepresents the framework. Statement 2 is correct. The IMF itself — and standard economic doctrine — distinguishes between direct market intervention (buying/selling foreign exchange from reserves to influence the spot rate) and structural capital-account measures such as relaxing external commercial borrowing (ECB) rules or offering incentive rates on FCNR(B)/NRE deposits for Non-Resident Indians. The latter attract fresh dollar supply without depleting existing reserves and are broadly seen as complementary rather than substitutive to intervention. Statement 3 is correct. A dedicated dollar window for oil PSUs channels their large, recurring import-payment demand through a separate facility rather than the open interbank forex market, thereby preventing concentrated dollar buying from causing sharp, sudden depreciation pressure. This is a classic demand-management instrument in the RBI's forex toolkit and has been used on previous occasions (most notably during the 2013 taper tantrum) for the same purpose.

Explanation

Statement 1 is correct. A managed float (also called a 'dirty float') is the regime India operates under: the rupee's value is set primarily by supply and demand in the forex market, but the RBI intervenes periodically to curb excessive volatility. This is distinct from a fixed peg (where the rate is administratively set) and a pure float (where the central bank never intervenes). Statement 2 is correct. The IMF's standard advice — consistent with its Article IV consultations and published guidance — is that exchange rate flexibility acts as a shock absorber for external shocks such as oil price surges or capital flow reversals, and that reserve-based intervention is less effective beyond the short term. The IMF recommends letting the exchange rate move first and using reserves only as a secondary, smoothing tool. Statement 3 is incorrect. When the RBI sells dollars (foreign currency) to defend the rupee, it receives rupees in exchange from the market. This means rupees flow OUT of the banking system back to the RBI, thereby reducing — not increasing — domestic rupee liquidity. This is a classic sterilisation concern: large-scale dollar sales tighten domestic liquidity, which may prompt the RBI to conduct offsetting open market operations.