MONETARY POLICY COMMITTEE - ECONOMY
News: RBI's
monetary policy committee starts deliberations amid expectations of moderate
rate hike
What's in the news?
● The
Reserve Bank of India's (RBI’s) rate-setting panel on December 5 started brainstorming
for the next round of monetary policy amid expectations of a moderate interest
rate hike of 25-35 basis points as inflation has started showing signs of
easing and economic growth tapering.
Monetary policy of RBI:
Monetary policy is the process implemented by the central bank
to manage the money supply in order to achieve specific goals such as limiting
inflation, maintaining an appropriate exchange rate, creating jobs, and
promoting economic growth.
Objectives of Monetary Policy Framework:
● Price
stability
● Accelerating
growth of economy
● Exchange
rate stabilization
● Balancing
savings and investment
● Generating
employment
● Financial
stability
The
primary goal of monetary policy is to maintain
price stability while keeping growth in mind. Price stability is a
prerequisite for long-term growth.
Who will fix the monetary policy?
Monetary Policy Committee (MPC):
● The
Monetary Policy Committee now determines
the policy interest rate required to achieve the inflation target in India.
● The
MPC is a six-person committee appointed
by the Central Government (Section 45ZB of the amended RBI Act, 1934).
● The
MPC must meet at least four times per
year. The MPC meeting requires a quorum
of four members. Each MPC member has one vote, and in the event of a tie,
the Governor has a second or casting
vote.
● Following
the conclusion of each MPC meeting, the resolution adopted by the MPC is
published.
● The
Reserve Bank is required to publish a document called the Monetary Policy Report once every six months to explain:
○ the
sources of inflation
○ the
forecast of inflation for the next 6-18 months.