Monetary Policy Committee - Chanakya Mandal Pariwar

 Monetary Policy Committee

Context       

  • The Reserve Bank of India’s Monetary Policy Committee increased the benchmark lending rate by 25 basis points to 6.5% due to concerns over high core inflation posing a risk to the country’s improving economic outlook.

Highlights of RBI’s 1st bi-monthly monetary policy of FY23

  • The withdrawal of accommodative stance was retained.
  • Reasons – Oil prices & Supply chain disruptions due to Russia-Ukraine War + This forecast is on the assumption of normal monsoon.
  • RBI has also hiked its Consumer Price Index (CPI) based inflation forecast for FY24 to 5.3%. + Inflation is projected at 6.5% in FY23, with Q4FY23 at 5.7%.
  • The MPC raised the repo rate by 25 basis points to 6.50% from 6.25%. So other rates are adjusted as follows:
  • CRR – 4.5% and SLR -18%
  • Policy Repo rate – 6.5 %
  • Standing Deposit Facility – 6.25%
  • Reverse Repo rate – 3.35%
  • MSF Rate – 6.75% + Bank Rate – 6.75%
  • As on January 27, 2023, India’s foreign exchange reserves are at US$ 576.8 billion.
  • The overall liquidity remains in surplus, with average daily absorption under the Liquidity Adjustment Facility (LAF) increasing to Rs 1.6 lakh crore during December 2022-January 2023 from an average of Rs 1.4 lakh crore in October-November, 2022.
  • Purchasing Managers’ Indices (PMIs) for manufacturing and services remained in expansion at 55.4 and 57.2 respectively in January 2023.
  • Global growth is expected to decelerate during 2023.

About MPC

  • Section 45ZB of the amended RBI Act, 1934 allows for the creation of a six-member Monetary Policy Committee (MPC) through a notification in the Official Gazette by the Central Government.
  • The committee consists of three officials from the Reserve Bank of India and three external members nominated by the government of India.
  • The central government nominees cannot be re-appointed and hold office for a period of four years from the date of appointment.
  • The governor of the Reserve Bank of India serves as the ex officio chairperson of the committee.
  • Each member of the committee is required to write a statement outlining their reasoning for voting for or against a proposed resolution.
  • The current mandate of the MPC is to maintain 4% annual inflation until March 31, 2026, with an upper tolerance of 6% and a lower tolerance of 2%.

PYQ

Q) If the RBI decides to adopt an expansionist monetary policy, which of the following would it not do?

(1) Cut and optimize the Statutory Liquidity Ratio

(2) Increase the Marginal Standing Facility Rate

(3) Cut the Bank Rate and Repo Rate

Select the correct answer using the code given below:

(a)1 and 2 only (b) 2 only

(c) 1 and 3 only (d) 1, 2 and 3

0