Policy adjustment

Currency can increase inflation risks

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In a world with heightened uncertainties, the six-member monetary policy committee (MPC) of the Reserve Bank of India (RBI) did well not to increase them further. As widely expected by the financial markets, the MPC on Wednesday unanimously decided to cut the policy repo rate by 25 basis points to 6 per cent.

It also decided to change the policy stance from "neutral" to "accommodative", which effectively means, barring an economic shock, the possibility of increasing the policy repo rate is off the table. The MPC in its upcoming meetings will only deliberate the possibility of cutting the policy rate or maintaining the status quo. The change in policy stance, along with several liquidity measures taken in the recent past by the RBI, should improve the pace of policy transmission.