Context: 

The Reserve Bank of India decided to raise its benchmark policy rate albeit by a smaller quarter percentage point. 

More on News:

• The Monetary Policy Committee’s primary mandate is to steer retail inflation towards a 4% target.
• The decision to raise the policy rate assumes significance as the:
  • High Prices: Core price gains have stayed stuck above or almost at 6% for 20 months.
  • Focus on Growth: medium­ term growth prospects would be best strengthened by ‘keeping inflation expectations anchored and breaking the persistence of core inflation’.
  • Commodity prices are also expected to rise globally, given the lifting of most COVID­ related restrictions, recent uptrend in Brent futures and the intensifying Ukraine conflict

•     The decisions shows that MPC is cognisant of the growth retarding challenges that rising credit costs could pose to the ongoing post pandemic recovery.

 Monetary Policy Committee:

• The Monetary Policy Committee (MPC) is a committee constituted by the Central Government and led by the Governor of RBI.
• It was formed with the mission of fixing the benchmark policy interest rate (repo rate) to restrain inflation within the particular target level.
•  The RBI Governor controls the monetary policy decisions with the support and advice of the internal team and the technical advisory committee.
  • Initially, the main decisions related to interest rates were taken by the Governor of RBI alone before the establishment of the committee.
  • MPC was constituted under the Reserve Bank of India Act, 1934 as an initiative to bring more transparency and accountability in fixing the Monetary Policy of India.

• MPC conducts meetings at least 4 times a year and the monetary policy is published after every meeting with each member explaining his opinions.

Instruments of Monetary Policy:

• Repo rate
• Reverse Repo rate
• Liquidity Adjustment Facility (LAF)
• Marginal Standing Facility (MSF)
• Corridor
• Bank Rate
• Cash Reserve Ratio (CRR)
• Statutory Liquidity Ratio (SLR)
• Open Market Operations (OMOs)
• Market Stabilization Scheme (MSS)

Objectives of Monetary Policy:

• To stabilize the business cycle.

• To provide reasonable price stability.

• To provide faster economic growth.

• Exchange Rate Stability

• Price Stability                                                                                                                                     

News Source: The Hindu