Despite the uncertainties, it is rational for the Monetary Policy Committee to support the recovery of the economy and be in line with the projected inflation. Discuss (200 Words)
Refer - Business Line
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IAS Parliament 3 years
KEY POINTS
· In the monetary policy resolution announced, the Monetary Policy Committee (MPC) decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 4 per cent, and consequently, the reverse repo rate and the marginal standing facility (MSF) rate were also kept unchanged.
· It also decided to continue with the accommodative monetary policy stance till the economy recovers from the shock of the Covid-19.
· However, the minutes of the MPC meeting indicated that there was some divergence of opinion among the MPC members regarding this resolution.
· The dissenting view argued against the accommodative stance of the MPC as the projected inflation is beyond the target inflation rate set.
· While a plurality of views within the MPC could make the monetary policy decision-making process more mature.
· The latest quarterly GDP statistics show that though there is a significant quarter-on-quarter nominal growth rate, that is largely because of the base effect.
· It also shows that in real terms, many industrial and services sub-sectors have not yet reached the pre-Covid production levels.
· There was also a suggestion in the MPC committee that the reverse-repo rate should be increased.
· The reverse-repo rate allows the banks to park their additional funds with the RBI and earn interest rates.
· Unlike some of the developed countries, the size of the fiscal policy measures has been relatively modest in India.
