RBI Maintains Status Quo On Interest Rates

RBI maintained its benchmark interest rate at 6.5% for the 10th successive monetary policy review since April 2023.

About Repo rate

Repo rate refers to the rate at which commercial banks borrow money by selling their securities to the Central Bank of our country i.e. Reserve Bank of India (RBI).
It is one of the main tools of RBI to keep inflation under control.

Monetary Policy Committee

Monetary Policy Framework Agreement 2015: MPC was set up consequent to the agreement reached between Government and RBI to task RBI with the responsibility for price stability and inflation targeting.
Under Section 45ZB of the amended RBI Act, 1934, the central government is empowered to constitute a six-member Monetary Policy Committee.
- The first such MPC was constituted in 2016.
Inflation Target: RBI is responsible for containing inflation targets at 4% (with a standard deviation of 2%) in the medium term.
- The Central Government determines the inflation target in terms of the Consumer Price Index, once in every five years in consultation with the RBI.
Function MPC: To determine the policy interest rate required to achieve the inflation target.
Quorum for a meeting: Four Members, one of whom shall be the Governor and, in his absence, the Deputy Governor, who is the Member of the MPC.
Decision making of MPC:
- The MPC takes decisions based on majority vote (by those who are present and voting).
- In case of a tie, the RBI governor will have the second or casting vote.
- The decision of the Committee would be binding on the RBI.
Members of MPC
- RBI Governor as its ex-officio chairperson
- Deputy Governor in charge of monetary policy
- An officer of the Bank to be nominated by the Central Board
- Three persons to be appointed by the central government
Policy stance: The policy stance tells everyone what the MPC is trying to achieve by its actions.
- A policy stance tells us whether the MPC is trying to contain inflation or boost growth while containing inflation or simply being neutral.
- Various policy stance of MPC can be categorised as shown in table below:

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Accommodative	Central bank is prepared to expand the money supply to boost economic growth. Willing to cut the interest rates i.e Rate hike is ruled out Adopts an accommodative policy when growth needs policy support and inflation is not the immediate concern.
Neutral	Central bank can either cut rate or increase rate Adopted when the policy priority is equal on both inflation and growth.
Hawkish Stance	Central bank’s top priority is to keep inflation low. Central bank is willing to hike interest rates to curb money supply and thus reduce the demand. Also indicates tight monetary policy. Increases rates or ‘tightens’ the monetary policy indicating Banks to increase their rate of interest on loans to end borrowers. It curbs demand in the financial system.
Calibrated Tightening	During the current rate cycle, a cut in the repo rate is off the table. However, the rate hike will happen in a calibrated manner.

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