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Context:
- Recently, the first bi-monthly monetary policy review of 2018-19 has been introduced.
Background:
4th April, 2018:
- The Reserve Bank of India’s (RBI’s) Monetary Policy Committee (MPC) has introduced the first bi-monthly monetary policy review of 2018-19.
- Please note: Meetings of the Monetary Policy Committee are to be held at least 4 times a year.
- This was the first Monetary Policy Committee meeting of the financial year 2018-2019.
- The second bi-monthly policy meeting in the FY19 is scheduled on 5th and 6th June, 2018 respectively.
Monetary policy:
- Process by which monetary authority of a country controls the supply of money in the economy by its control over interest rates in order to maintain price stability and achieve high economic growth.
- Please note: RBI and the government signed the Monetary Policy Framework Agreement on 20th February, 2015.
Monetary policy committee:
- Created in
- Committee of the Reserve Bank of India.
- Headed by its Governor.
Committee Structure:
- The committee comprises six
- Three officials of the Reserve Bank of India.
- Three external members nominated by the Government of India.
Objective:
- Fixing the benchmark policy interest rate (repo rate) to contain inflation within the target level.
- Please note: The government can convey its views to the MPC from time to time.
- RBI is also mandated to furnish necessary information to the MPC to facilitate their decision making.
Salient features of RBI’s bi-monthly monetary policy review of 2018-19 are:
- Benchmark repo rate has been kept unchanged at 6%.
- Reverse repo rate has also been left unchanged at 5.75% and the bank rate at 25%.
- The inflation projection to 7-5.1% in the first half of the financial year 2018-2019 and 4.4% in H2 has been revised.
- A GDP growth of 4% in FY19 from 6.6% in FY18 has been forecasted.
- Further, the GDP growth has been projected at 3-7.4% in H1 and 7.3-7.6% in H2 of FY19.
- A minimum level of ‘loan component’ in fund based working capital finance for larger borrowers is being specified.
- Concerns are raised on the global trade war and stock market volatility triggered by uncertainty regarding the pace of normalisation of US monetary policy.
- Warnings have been circulated to all the banks and financial entities to restrain themselves dealing with virtual currencies and cut all the ties within three months.
- Inflation in respect of liquefied petroleum gas has declined in line with international price movements.
- Furthermore, the rate of increase in prices of firewood and chips, and dung cake has been moderated.
- Signs of revival in investment activities with exports to getting a boost from the improvement in global demand have been cleared.
- Establishment of a Data Sciences Lab within the RBI has been proposed.
Conclusion:
Thus, the RBI has done well to adopt a lot balanced approach in the current economic context.