Which of the following is/are the policy instrument of Reserve Bank of India?…

Concept: A monetary-policy instrument is a lever a central bank itself sets and revises to directly steer the cost or quantity of money/credit — not a variable whose level is instead set mainly by market forces. Economists call the former "instrument variables" (the tools) and the latter "target/outcome variables" (what policy tries to influence).

Application:

• Repo Rate (Statement I): the rate at which RBI lends short-term funds to commercial banks against government securities; RBI sets and revises this rate directly, and doing so changes the cost of bank credit economy-wide — a textbook instrument variable.

• Reverse Repo Rate (Statement II): the LAF rate at which RBI can absorb (borrow) surplus bank funds; since 2022 the Standing Deposit Facility and the MSF rate bound the operative liquidity corridor, so Reverse Repo Rate is no longer a corridor boundary, but it remains a rate RBI itself sets and can deploy at its discretion — so it too is an instrument variable, just not the currently operative one.

• Exchange Rate (Statement III): the rupee's value against other currencies moves mainly with market demand and supply; RBI only steps in through reserves/forex operations when needed, so it is a target/outcome variable RBI influences indirectly, not a rate it fixes as a policy lever.

Cross-check: Apply the instrument-vs-target test independently: can RBI announce a new value for it at a policy meeting and have that value take effect immediately, the way a rate hike does? That is true for a rate RBI itself sets, and false for a price the market discovers — which is exactly the line separating the genuine instruments here from the market-determined one.

Result: Only the RBI-administered rates qualify as policy instruments; the market-determined variable does not.