The Monetary Policy Committee of the Reserve Bank of India met on 4th, 5th and 6th August for its second meeting of 2020-21. During the second Monetary Policy meet, the MPC analysed the current & evolving macroeconomic and financial conditions and has decided to continue with the accommodative stance to revive growth as well as to mitigate the impact of COVID-19. With its decisions, MPC aims to keep inflation within the target and hence to preserve financial stability.
Also, for the year 2020-21, as a whole, real GDP growth is expected to be negative.
The key decisions taken in the Monetary Policy Committee meeting are:
What is Monetary policy?
Monetary Policy is the central bank’s policy which uses the monetary instruments like Repo rate, Reverse repo rate, Liquidity Adjustment Facility and many others, to achieve the goals stated in the Act. In India, the Reserve Bank of India (RBI) has been given the responsibility of conducting monetary policy as mandated under the Reserve Bank of India Act, 1934.
Objectives of monetary policy?
The Monetary Policy Framework:
The amendment in the Reserve Bank of India (RBI) Act, 1934 provides the Reserve Bank of India a legislative mandate to operate the monetary policy framework of the country. This framework aims to set the policy (repo) rate after the assessment of the current and evolving macroeconomic situation, and modulation of liquidity conditions to anchor money market rates at or around the repo rate.
What is the Composition of the Monetary Policy Committee?
The Central Government has constituted the six-member monetary policy committee (MPC) in September 2016, according to the Section 45ZB of the amended RBI Act, 1934.
The composition of the Monetary Policy Committee is as follows:
1. Governor of the Reserve Bank of India – Chairperson, ex officio: Shri Shaktikanta Das
2. Deputy Governor of the Reserve Bank of India, in charge of Monetary Policy– Member, ex officio: Dr. Michael Debabrata Patra
3. One officer of the Reserve Bank of India to be nominated by the Central Board – Member, ex officio: Dr. Mridul K. Saggar
4. Dr. Chetan Ghate, Professor, Indian Statistical Institute (ISI): Member
5. Dr. Pami Dua, Director, Delhi School of Economics: Member
6. Dr. Ravindra H. Dholakia, Professor, Indian Institute of Management, Ahmedabad: Member.
Some important instruments of Monetary Policy:
The RBI’s Monetary Policy has several direct and indirect instruments which is used for implementing the monetary policy. Some important instruments of Monetary Policy are as follows:
Accommodative stance of RBI’s Monetary Policy Statement:
Accommodative stance is taken by the RBI’s Monetary Policy Committee to expand the overall money supply to boost the economy when the growth is slowing down.
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