Context: The Reserve Bank of India’s Monetary Policy Committee on Friday raised its estimate for inflation in FY23 to 5.7%, from the 4.5% forecast in February before Russia invaded Ukraine.
RBI also held benchmark interest rates and retained its ‘accommodative’ stance.
But it would now turn its focus to the withdrawal of accommodation to ensure that inflation remains within the target.
It also lowered its growth estimate for the current fiscal to 7.2%.
What is an accommodative stance?
An accommodative stance means that there is room for lowering interest rates in the future to revive growth and demand in the economy.
Accommodative monetary policy, also known as loose credit or easy monetary policy, occurs when a central bank attempts to expand the overall money supply to boost the economy when growth is slowing (as measured by GDP).
The policy is implemented to allow the money supply to rise in line with national income and the demand for money.
What is the Monetary Policy Committee?
Urjit Patel committee in 2014 recommended the establishment of the Monetary Policy Committee.
It is a statutory and institutionalized framework under the Reserve Bank of India Act, 1934, for maintaining price stability, while keeping in mind the objective of growth.
Composition: Six members (including the Chairman) – three officials of the RBI and three external members nominated by the Government of India.
The Governor of RBI is ex-officio Chairman of the committee
Functions: The MPC determines the policy interest rate (repo rate) required to achieve the inflation target (presently 4%). Decisions are taken by majority with the RBI Governor having the casting vote in case of a tie.
