Monetary Policy Committee

Monetary Policy is designed by the central bank of a country, to manage the supply of money and key interest rates. The main aim of monetary policy is to maintain stability in prices along with keeping up with the aim of overall growth.

Key Points

  • The Reserve Bank of India Act, 1934 was amended by Finance Act (India), 2016 to constitute the Monetary Policy Committee (MPC).
  • MPC was constituted with an aim of bringing more transparency and accountability in designing India’s Monetary Policy.
  • The committee comprises six members: three from the Reserve Bank of India and three external members nominated by the Government of India, with the RBI Governor as the ex-officio Chairperson.
  • The MPC reviews are held at least 4 times a year. Usually, they hold bi-monthly meetings and publish their decision and observation.

MPC keeps all policy rates in the bi-monthly Monetary Policy Review

The Monetary Policy Committee of RBI has kept all the policy rates unchanged in its bi-monthly Monetary Policy Review held on December 4. This is the 3rd consecutive time that MPC has kept the rates unchanged.

Why rates are unchanged?

MPC has a view that inflation is expected to be elevated. The committee also thinks that the signs of recovery are away from being broad-based and the recovery is dependent on the support of a sustained policy. The committee will be monitoring all the threats to price stability closely.

What are the current Policy rates?

At present, the policy rates are-

Policy Repo Rate– 4.00%

Reverse Repo Rate– 3.35%

Bank Rate– 4.25%

Marginal Standing Facility Rate (MSF) – 4.25%

GDP growth forecast by MPC

As per the MPC, the GDP of the country is projected to increase to 6.5% in the first half of fiscal 2021-22 (by 21.9%).

The GDP growth has decreased by 23.9% in the June quarter and by 7.3 percent in the September quarter.

Now when the country is in unlock; the GDP is projected to decrease by 7.5% in 2020-21. It is expected that the GDP will increase by 0.1% in the third quarter of 2020-21 and by 0.7% in the 4th quarter.

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