If the RBI decides to adopt an expansionist monetary policy, which of the following would it not do?

1. Cut and optimize the Statutory Liquidity Ratio
2. Increase the Marginal Standing Facility Rate
3. Cut the Bank Rate and Repo Rate Select the correct answer using the code given below:

An expansionist monetary policy aims to increase the money supply to stimulate economic activity.

The RBI uses various tools, both quantitative and qualitative, to manage the money supply. Quantitative tools include the Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), Bank Rate, and instruments under the Liquidity Adjustment Facility (LAF), such as the Marginal Standing Facility (MSF).

Let's analyze each statement:

1. Statutory Liquidity Ratio (SLR): The SLR is the proportion of liquid assets banks must hold relative to their Net Demand and Time Liabilities (NDTL). During a recession, the RBI reduces the SLR to increase bank credit.

2. Marginal Standing Facility (MSF): The MSF is a window for scheduled banks to borrow overnight funds from the RBI against government securities. Increasing the MSF rate makes borrowing more expensive.

3. Bank Rate and Repo Rate: The Bank Rate is the interest rate charged by the RBI on loans to commercial banks. The Repo Rate is the rate at which the RBI lends to commercial banks against securities. Lowering these rates reduces borrowing costs and increases liquidity.

Therefore:

• Cutting and optimizing the SLR would be part of an expansionist policy.
• Increasing the MSF rate would not be part of an expansionist policy, as it tightens liquidity.
• Cutting the Bank Rate and Repo Rate would be part of an expansionist policy.

Statement 2 is the only action the RBI would not take under an expansionist monetary policy.

Hence, option (b) is the correct answer.