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.