Daily Current Affairs for CA Foundation — 31 May 2026

Exam-ready economy and business knowledge for CA Foundation Paper 4 (Business Economics and Business & Commercial Knowledge). Today's focus is on the RBI's monetary policy toolkit and India's inflation-targeting framework — high-yield areas for the Indian Economy and Money & Banking topics. Each item ends with a practice MCQ, and there's a one-liner revision section at the end.

---

1. RBI's Monetary Policy Framework and the Repo Rate

The Reserve Bank of India (RBI) conducts monetary policy under a flexible inflation-targeting (FIT) framework. The Monetary Policy Committee (MPC) — a six-member committee, three from the RBI and three appointed by the Central Government — sets the policy repo rate. The inflation target is 4% Consumer Price Index (CPI) inflation, with a tolerance band of +/- 2% (i.e., 2% to 6%).

The repo rate is the rate at which the RBI lends short-term funds to commercial banks against government securities. A cut makes borrowing cheaper (expansionary); a hike makes it costlier (contractionary).

MCQ: Q1. Under India's flexible inflation-targeting framework, the RBI's CPI inflation target is:

• (a) 2% with a band of +/- 2%
• (b) 4% with a band of +/- 2%
• (c) 6% with a band of +/- 1%
• (d) 5% with a band of +/- 3%

Answer: (b) 4% with a band of +/- 2%

---

2. Repo vs Reverse Repo, CRR and SLR

Students often confuse the RBI's quantitative tools. Quick distinctions:

• Repo rate — RBI lends to banks.
• Reverse repo rate — RBI borrows from banks (absorbs liquidity).
• Cash Reserve Ratio (CRR) — share of a bank's deposits kept as cash with the RBI; earns no interest.
• Statutory Liquidity Ratio (SLR) — share of deposits banks must hold in liquid assets (cash, gold, approved securities).

MCQ: Q2. Which of the following is the rate at which the RBI absorbs liquidity by borrowing from commercial banks?

• (a) Repo rate
• (b) Bank rate
• (c) Reverse repo rate
• (d) Marginal Standing Facility rate

Answer: (c) Reverse repo rate

---

3. Fiscal Deficit and the FRBM Framework

The fiscal deficit is the excess of total government expenditure over total receipts (excluding borrowings). It signals how much the government must borrow. The Fiscal Responsibility and Budget Management (FRBM) Act, 2003 provides the framework for fiscal discipline and targets for reducing the fiscal deficit over time.

MCQ: Q3. Fiscal deficit is best defined as:

• (a) Total expenditure minus total receipts excluding borrowings
• (b) Revenue expenditure minus revenue receipts
• (c) Total receipts minus capital expenditure
• (d) Interest payments minus tax revenue

Answer: (a) Total expenditure minus total receipts excluding borrowings

---

One-Liner Revision Section

1. MPC: Six members; sets the repo rate under flexible inflation targeting.
2. Inflation target: 4% CPI, band of 2% to 6%.
3. Repo rate: RBI lends to banks; cut = expansionary, hike = contractionary.
4. Reverse repo: RBI borrows from banks to absorb liquidity.
5. CRR vs SLR: CRR is cash with RBI (no interest); SLR is liquid assets held by the bank itself.
6. Fiscal deficit: Total expenditure minus receipts excluding borrowings; governed by the FRBM Act, 2003.

---

Part of CA Saarthi's daily current affairs for CA Foundation. Practice 3,000+ chapter-wise MCQs free at casaarthi.in.