RBI’s Monetary Policy Committee

• IAS NEXT, Lucknow
• 11, Apr 2022

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The Reserve Bank of India’s Monetary Policy Committee on Friday raised its estimate for inflation in FY23 to 5.7%, from the 4.5% forecast in February before Russia invaded Ukraine.

• RBI also held benchmark interest rates and retained its ‘accommodative’ stance.
  • But it would now turn its focus to the withdrawal of accommodation to ensure that inflation remains within the target.
• It also lowered its growth estimate for the current fiscal to 7.2%.

What is an accommodative stance?

• An accommodative stance means that there is room for lowering interest rates in the future to revive growth and demand in the economy.
• Accommodative monetary policy, also known as loose credit or easy monetary policy, occurs when a central bank attempts to expand the overall money supply to boost the economy when growth is slowing (as measured by GDP).
• The policy is implemented to allow the money supply to rise in line with national income and the demand for money.

What is the Monetary Policy Committee?

• Urjit Patel committee in 2014 recommended the establishment of the Monetary Policy Committee.
• It is a statutory and institutionalized framework under the Reserve Bank of India Act, 1934, for maintaining price stability, while keeping in mind the objective of growth.
• Composition: Six members (including the Chairman) – three officials of the RBI and three external members nominated by the Government of India.
• The Governor of RBI is ex-officio Chairman of the committee
• Functions: The MPC determines the policy interest rate (repo rate) required to achieve the inflation target (presently 4%). Decisions are taken by majority with the RBI Governor having the casting vote in case of a tie.