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Context:

The Reserve Bank of India's (RBI) bi-monthly consumer confidence survey (CCS) found that consumers' confidence in the overall economic situation, employment outlook, income, and spending has weakened.

Highlights of the Survey

Current Situation Index (CSI)

The index dropped by 0.7 points, from 94.7 in September 2024 to 94 in November 2024. This suggests a slight drop in consumer confidence in the current economic situation, including the general economic situation, employment, income, and spending.

Future Expectations Index (FEI)

The index improved by 0.5 points, reaching 121.9 in November 2024. This indicates that, while current sentiments are weaker, households are more optimistic about the future over key economic parameters, with the exception of prices.

Households' inflation

The median perception of current inflation increased by 30 basis points, reaching 8.4%. Expectations for inflation in the next three months fell slightly, but the one-year ahead expectation increased to 10.1%, reflecting concerns about rising inflation.

Household inflation expectations have risen as a result of increased pressures from food and housing costs. A greater proportion of respondents expect inflation to rise in the coming year, reflecting these concerns.

The Consumer Confidence Survey (CCS) is a tool used by the Reserve Bank of India (RBI) for evaluating consumer sentiment toward the economy. The survey is conducted on a regular basis across India. The survey results are used to calculate the Consumer Confidence Index (CCI). The CCI offers perspectives on the direction of the Indian economy.

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INFLATION EXPECTATIONS SURVEY OF HOUSEHOLDS' AND 'CONSUMER CONFIDENCE SURVEY

Source:

Indian Express

PRACTICE QUESTION

Q.Consider the following statements:

1. Borrowing costs increase as the RBI raises the repo rate.

2. The RBI tightens the money supply by increasing the CRR.

3. The sale of securities by the RBI reduces market liquidity.

How many of the above statements are incorrect?

A) Only one

B) Only two

C) All three

D) None

Answer: D

Explanation:

Statement 1 is correct:

The repo rate refers to the interest rate at which commercial banks borrow from the RBI. When the repo rate rises, banks have to pay more to borrow money. Banks pass these increased costs on to customers by raising interest rates.

Statement 2 is correct:

The Cash Reserve Ratio (CRR) is the percentage of total deposits that commercial banks need to maintain in cash reserves at the RBI. The RBI adjusts the CRR in response to changes in the financial market's money supply.

When the RBI raises the CRR, banks must keep more funds in reserve with the RBI, reducing the amount of money available for lending. This lowers the money supply in the economy.

Statement 3 is correct:

Open Market Operations (OMO) are the RBI's purchases and sales of government securities in the open market. When the RBI sells securities, it takes excess liquidity from the market and controls inflation.