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?

1. A. Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I
2. B. Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I
3. C. Statement-I is correct but Statement- II is incorrect
4. D. Statement-I is incorrect but Statement-II is correct

Answer: A

Explanation

Statement I is correct. In the period following the COVID-19 pandemic, many central banks globally, including the US Federal Reserve and the European Central Bank, implemented significant interest rate hikes to combat high inflation. This was a widely reported and synchronized global phenomenon. Statement II is also correct. Central banks’ primary mandate often includes maintaining price stability, and they utilize monetary policy tools, such as adjusting interest rates, quantitative easing/tightening, and reserve requirements, with the fundamental assumption that these measures can influence and counteract rising consumer prices. Statement II provides the underlying rationale for the actions described in Statement I; central banks raised rates because they believe monetary policy can control inflation. This question assesses understanding of contemporary global economic trends and core central banking principles.