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?
- A.Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
- B.Both Statement-I and Statement-II are correct but Statement-II does not explain Statement-I
- C.Statement-I is correct but Statement-II is incorrect
- D.Statement-I is incorrect but Statement-II is correct
▶ Answer & Explanation
Correct answer: A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
Central banks globally, including those in major economies, raised interest rates significantly in the period following the COVID-19 pandemic to combat surging inflation. This action is a direct application of their primary mandate and belief in the effectiveness of monetary policy tools, such as interest rate adjustments, to manage aggregate demand and thereby control consumer price levels.
Source: UPSC gs1 2023