IMPORTANT JARGON

MONETARY POLICY COMMITTEE (MPC) MAINTAINS STATUS QUO ON INTEREST RATES; HOWEVER, STAYS VIGILANT ON INFLATION

The Reserve Bank of India’s six-member Monetary Policy Committee (MPC) left policy interest rates unchanged for the sixth time in a row in its February meeting. While the MPC is bullish on the near-term economic growth, it has highlighted certain upside risks to the food inflation trajectory.

Q. What Is Policy Rate?

Different central banks have different benchmark interest rates. In India, the repurchase rate (repo rate) is the benchmark rate that the monetary policy committee tweaks (alongside other tools at its disposal) to achieve its mandate of keeping 4% inflation as measured by the consumer price index (CPI) for the medium term.

The repo rate is the interest rate at which banks borrow from the RBI during times of liquidity crunch. This repo rate acts as a benchmark and influences other interest rates in the economy like banks’ lending and savings interest rates, corporate bonds, government bonds, etc.

Q. What Has Been The MPC's Decision?

The MPC has kept the repo rate unchanged at 6.5%. It was not an unanimous decision of all the members. One MPC member voted for a 25 basis points (bps) cut in the repo rate.

Q. What Is The Current Stance Of The Monetary Policy?

One member out of six from the monetary policy committee also voted for a change in the policy stance to ‘neutral’ from the current policy stance of ‘withdrawal of accommodation.’

To point out, along with the announcement of any tweaking of the policy rates, the MPC also comes out with a stance which indicates the direction of the upcoming monetary policy reviews.