UPSC Prelims 2023 · Question 42 of 97
UPSC Prelims 2023 question on Central Banks Rate Hikes Post Pandemic
- ExamUPSC CSE
- Year2023
- PaperGeneral Studies Paper I
- SubjectIndian Economy
- TopicBanking
- DifficultyMedium
- TypeAssertion
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?
Show answer
Answer: A. Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I
Verdict
Correct answer: Option (a).
Statement by statement
Statement I – CORRECT: A new study by the World Bank revealed that with the central banks across the world simultaneously hiking interest rates in response to inflation, the world may be edging toward a global recession in 2023. Central banks around the world have been raising interest rates with a degree of synchronicity not seen over the past five decades — a trend likely to continue well into next year.
Statement II – CORRECT and is the correct explanation of Statement I: A central bank with a high degree of credibility firmly anchors expectations of price stability. Central Banks generally assume that they have the ability to counteract the rising consumer prices via increasing interest rates. Hence both statements are correct and statement II is the correct explanation of statement I.