{"id":263286,"date":"2023-10-07T18:57:53","date_gmt":"2023-10-07T13:27:53","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=263286"},"modified":"2023-10-07T18:57:53","modified_gmt":"2023-10-07T13:27:53","slug":"rbis-monetary-policy-and-the-art-of-letting-it-be-on-recent-monetary-policy-decisions","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/rbis-monetary-policy-and-the-art-of-letting-it-be-on-recent-monetary-policy-decisions\/","title":{"rendered":"RBI\u2019s Monetary Policy and the art of letting it be \u2014 on recent monetary policy decisions"},"content":{"rendered":"\n

Source: <\/strong>This post has been created based on the article \u201cRBI\u2019s Monetary Policy and the art of letting it be\u201d<\/strong> published in the Indian Express<\/strong> on 7th<\/sup> October 2023.<\/strong><\/p>\n

UPSC Syllabus Topic: GS Paper 3 Indian Economy \u2014 issues relating to planning, <\/strong>mobilization of resources, growth, development <\/strong>and employment.<\/p>\n

News<\/strong>:\u00a0The article discusses the reasoning behind RBI\u2019s tight monetary policy and the inflationary trends and growth projections of India considering various domestic and external challenges.<\/p>\n

The\u00a0Monetary Policy Committee (MPC) <\/strong>kept the policy interest rates unchanged<\/strong> and retained its stance of \u2018withdrawing accommodation\u2019 <\/strong>(or a \u201ctight monetary policy\u201d<\/strong>).<\/p>\n

Here, accommodative monetary policy<\/strong> refers to a strategy used by central banks that is aimed at keeping interest rates low in order to infuse more cash into the economy.<\/p>\n

Why the \u2018withdrawal of accommodation\u2019?<\/strong><\/h2>\n

Both domestic and external reasons are behind this policy stance.<\/p>\n

Domestic Reasons: <\/strong><\/p>\n

1) Unanticipated and uncontrollable risks to\u00a0inflation\u00a0\u2014 such as the huge rise in prices of tomatoes and other food items. <\/strong><\/p>\n

2) Incomplete monetary policy transmission <\/strong>of past rate hikes. Hence the MPC decided to hold its stance.<\/p>\n

External Reasons:<\/strong><\/p>\n

1) The continuation of Hawkish (or tight) monetary policies<\/strong> by systemically important central banks, particularly by the US\u00a0Federal Reserve.<\/p>\n

2) The rise in crude oil prices.<\/p>\n

What are the implications of monetary policy on the economy?<\/strong><\/h2>\n

In the developed world, monetary policy is at a delicate juncture. Too much tightening<\/strong> could lead to\u00a0recession<\/strong> in the economy; less tightening<\/strong> could lead to high inflation<\/strong>.<\/p>\n

The positive outcome of tight monetary policy stance by the US Federal Reserve is the US 10-year treasury yields going up. This is attracting capital to the USA<\/strong> and away from the emerging markets and strengthening the dollar<\/strong>. This has also resulted in the depreciation of the<\/strong> rupee<\/strong>.<\/p>\n

What does the inflation scenario in India look like?<\/strong><\/h2>\n

1) The recent tomato-led surge in vegetable inflation<\/strong> spiked the Consumer Price Index<\/strong>. However, fresh arrivals have corrected the inflated vegetable prices.<\/p>\n

2) Double-digit inflation in cereals, pulses and spices<\/strong>.<\/p>\n

3) Overall kharif sowing is only marginally above last fiscal\u2019s level and lags for pulses and jute.<\/p>\n

4) El Ni\u00f1o conditions<\/strong> and Lower water reservoir levels<\/strong> compared to last year and the decadal average may also impact the rabi<\/strong> or winter crop.<\/p>\n

6) Crude oil prices have emerged as another potential risk<\/strong>. India is at high risk as 85% of its crude oil is imported<\/strong>. Geopolitics and squeezing of the supply by oil-exporters <\/strong>may lead to a rise in crude prices despite weakening global demand.<\/p>\n

What are the growth projections for India considering this?<\/strong><\/h2>\n

The RBI has retained its GDP growth outlook at\u00a06.5% for this fiscal.<\/strong>\u00a0However, CRISIL has lowered it to 6% due to the following challenges:<\/p>\n

1) Global economic slowdown and decrease in exports<\/strong>.<\/p>\n

2) Curbing of consumption demand due to domestic interest rate hikes.<\/p>\n

3) Erratic weather and El Ni\u00f1o curbing agricultural growth<\/strong>.<\/p>\n

4) Persistent supply shocks<\/strong> from food or fuel can transmit to other parts of the economy and broad base inflationary pressures<\/strong>.<\/p>\n

India\u2019s growth has been robust despite costlier crude oil, weakening rupee and pressure on food inflation from an erratic monsoon. However, supply shocks amid healthy growth will keep the RBI cautious.<\/p>\n","protected":false},"excerpt":{"rendered":"

Source: This post has been created based on the article \u201cRBI\u2019s Monetary Policy and the art of letting it be\u201d published in the Indian Express on 7th October 2023. UPSC Syllabus Topic: GS Paper 3 Indian Economy \u2014 issues relating to planning, mobilization of resources, growth, development and employment. News:\u00a0The article discusses the reasoning behind… Continue reading RBI\u2019s Monetary Policy and the art of letting it be \u2014 on recent monetary policy decisions<\/span><\/a><\/p>\n","protected":false},"author":10320,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[216,8184,10500],"class_list":["post-263286","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-gs-paper-3","tag-indian-economy","tag-indian-express","entry"],"jetpack_featured_media_url":"","views":{"total":2,"cached_at":"","cached_date":1698271407},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/263286","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10320"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=263286"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/263286\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=263286"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=263286"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=263286"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}