Context

• Taking note of the current situation in the recently held three-day meeting, the Monetary Policy Committee (MPC) has decided to keep the policy rate repo unchanged at 6.5 percent in the first bi-monthly monetary policy review of the current financial year.

Key Points

• It is noteworthy that RBI has the responsibility of keeping the retail inflation at two percent minus-plus at four percent.
• The Reserve Bank had increased the repo rate to 6.5 percent in February 2023. Before that, the policy rate was increased by 2.50 percent for six consecutive times from May 2022.
• Apart from this, the reverse repo rate is at 3.35 percent and the bank rate has been kept constant at 6.75 percent.
• It is noteworthy that the Monetary Policy Committee of RBI took the decision on the policy rate with a 5:1 majority.
• Along with this, the Central Bank has estimated the GDP growth rate to be at seven percent for 2024-25.
• Whereas retail inflation is estimated to be 4.5 percent in 2024-25.

Other important points expressed during the meeting

• India's foreign exchange reserves have reached a record level of $645.6 billion.
• There has been a decline in the core inflation rate but it is above the RBI target of 4 percent.
• In the interest of the economy, it is important that CPI i.e. Core Price Inflation is brought within the prescribed range.
• At the global level, there is concern due to political tension and obstacles on trade routes.
• A target of 7 percent or more has been set for GDP in all four quarters of the financial year 2025. A target of 6.9 percent has been set for the second quarter only.
• Investment in government securities and government bonds is increasing rapidly in the country.
• There is continuous fluctuation in food inflation rate but in the second quarter of the financial year 2025, it is expected to come within the target of 4 percent set by RBI and remain at 3.8 percent.

Why is monetary policy necessary?

• The monetary policy report is issued by the Monetary Policy Committee (MPC) of the RBI.
• The main objective of monetary policy is to maintain price stability while keeping in mind the objective of growth because price stability is a fundamental and primary condition for economic growth.

Monetary Policy Committee

• Monetary Policy Committee was established in the year 2016
• The Monetary Policy Committee (MPC) has six members, three of whom are from the Reserve Bank of India (RBI) and the other three are eminent economists.
• The members of RBI are Shaktikanta Das (Governor of RBI), Dr. Michael Debabrata Patra (Deputy Governor of RBI), and Rajeev Ranjan (Executive Director of RBI).
• Renowned economists Dr. Jayanti Verma, Dr. Ashima Goyal and Dr. Shashank Bhide.
• As per the RBI Act, the MPC is required to meet at least four times in a financial year. The MPC is chaired by the RBI Governor.

Important Facts For Exam

• Repo rate: The rate at which the central bank of a country (RBI for India) lends money to commercial banks in case of shortage of funds.