The Reserve Bank of India (RBI) has released its 5th Bi-Monthly Monetary Policy statement for 2019-20. The Monetary Policy was led by RBI Governor Shaktikanta Das. The Monetary Policy Committee (MPC) meeting was held during 3rd, 4th and 5th December, 2019 to deliberate extensively on the current and evolving macroeconomic and financial conditions, and the outlook.
About Monetary Policy:
Monetary policy refers to the policy of the central bank i.e. RBI, with regard to the use of monetary instruments under its control. The Reserve Bank of India is vested with the responsibility of conducting monetary policy. This responsibility of the bank is explicitly mandated under the Reserve Bank of India Act, 1934.
The prime target of the monetary policy is to preserve price stability while keeping in mind the intent of growth. Price stability is a necessary precondition to sustainable growth. The MPC determines the policy interest rate required to realize the inflation target. The first meeting of the MPC was held on October 3 and 4, 2016 in the run up to the 4th Bi-Monthly Monetary Policy Statement, 2016-17.
Direct and Indirect Instruments used by MPC for implementing monetary policy: Repo Rate, Reverse Repo Rate, Liquidity Adjustment Facility (LAF), Marginal Standing Facility (MSF), Bank Rate, Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), Open Market Operations (OMOs) and Market Stabilisation Scheme.
Present Monetary Policy Committee constitutes the following members:
- Governor of the Reserve Bank of India – Chairperson, ex officio: Shaktikanta Das.
- Deputy Governor of the Reserve Bank of India, in charge of Monetary Policy (Member, ex officio): Bibhu Prasad Kanungo.
- One officer of the Reserve Bank of India to be nominated by the Central Board (Member, ex officio): Michael Debabrata Patra.
- Shri Chetan Ghate, Professor, Indian Statistical Institute (ISI)- Member.
- Professor Pami Dua, Director, Delhi School of Economics– Member.
- Dr. Ravindra H. Dholakia, Professor, Indian Institute of Management, Ahmedabad– Member.
In its 5th Bi-monthly Monetary Policy Committee meeting, the Reserve Bank of India has decided to keep the policy repo rate unchanged to 5.15%. The MPC has also decided to maintain the accommodative stance of monetary policy to revive growth, while ensuring that inflation remains within the target. The main decisions taken in the 5th Bi-Monthly Monetary Policy Committee meeting are:
- The repo rate under the liquidity adjustment facility (LAF) left unchanged to 5.15%.
- The reverse repo rate under the LAF stands same i.e. 4.90%.
- The marginal standing facility (MSF) rate and the Bank Rate also remains same i.e. 5.40%.
The above decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2 %, while supporting growth.
The MPC has recognised that economic activity has weakened and this is the reason of monetary easing undertaken by the Reserve Bank since February 2019. These measures are gradually expected to further feed into the real economy. The introduction of linking retail loans with the external benchmark rates is also expected to strengthen monetary transmission.
The next meeting of the MPC is scheduled to be held on February 4-6, 2020.