RBI MONETARY POLICY EXPLAINED

RBI MONETARY POLICY EXPLAINED

Context

Reserve Bank of India announced Monetary Policy.

Details

• Reserve Bank of India (RBI)’s Monetary Policy Committee (MPC)  leave the policy repo rate unchanged at 4%.
• Marginal Standing Facility and Bank Rate will also remain unchanged at 4.25%, while the Reverse Repo Rate too will remain unchanged at 3.35%.

About Monetary Policy

• Monetary policy is the macroeconomic policy laid down by the central bank. It involves the management of money supply and interest rate and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity.
• RBI is vested with the responsibility of conducting monetary policy. This responsibility is explicitly mandated under the Reserve Bank of India Act, 1934.
• The RBI implements the monetary policy through open market operations, bank rate policy, reserve system, credit control policy, moral persuasion and through many other instruments.
• Using any of these instruments will lead to changes in the interest rate or the money supply in the economy.
• Monetary policy can be expansionary and contractionary in nature. Increasing money supply and reducing interest rates indicate an expansionary policy.
• The reverse of this is a contractionary monetary policy.                                                   
• The MPC will meet at least four times a year.
• The quorum for the meeting of the MPC is four members. Each member of the MPC has one vote, and in the event of an equality of votes, the Governor has a second or casting vote.
• The questions which come up before the MPC will be decided by a majority of votes by the members present in voting.