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Current Affairs

RBI’s Monetary policy

Date: 10 October 2020 Tags: Monetary Policy & RBI

Issue

 The Monetary Policy Committee (MPC) of the Reserve Bank of India said a faster and stronger rebound in the economy is “eminently feasible” if the current momentum of upturn gains ground. 

 

Background

MPC has  kept the key policy interest rates unchanged and said the real GDP is likely to grow by 20.6 percent in the first quarter of 2021-22.

 

Details

  • The policy panel said the real GDP growth in 2020-21 is expected to be negative at (-) 9.8 percent in the second quarter of 2020-21, (-) 5.6 percent in the third quarter and 0.5 percent in the fourth quarter.

  • The RBI’s projections indicate that inflation would ease closer to the target by the fourth quarter of 2020-21.

  • Retail inflation is projected at 6.8 percent for the second quarter of 2020-21, 5.4-4.5 percent for the first six months of 2020-21 and 4.3 percent for the first quarter of 2021-22.

  • The MPC’s assessment is that inflation will remain elevated in the September print, but ease gradually towards the target over Q3 and Q4. 

  • Agriculture and allied activities; fast-moving consumer goods; two-wheelers, passenger vehicles, and tractors; drugs and pharmaceuticals; and electricity generation, especially renewables, are some of the sectors that would recover faster.

  • Relative to pre-Covid levels, several high-frequency indicators are pointing to the easing of contractions in various sectors of the economy and the emergence of impulses of growth.

 

Monetary Policy Committee

  • The MPC is a statutory committee that fixes the key policy interest rates and monetary policy stance of the country as well as the inflation target.

  • The MPC comprises three external members and three members from the RBI. The RBI Governor heads the MPC, with the Deputy Governor in charge of the Monetary Policy Department, and the Executive Director looking after the policy as the other members from the central bank.

  • The meetings of the Monetary Policy Committee are held at least 4 times a year and it publishes its decisions after each such meeting.

  • All the members of MPC have equal voting rights and in case of tie, the RBI governor has the casting vote.