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MPC’s new decisions UPSC NOTE

 

  • Ashima Goyal joined Jayanth R. Varma as the two external members of the Monetary Policy Committee (MPC) voted as a minority for a 0.25% rate cut at the latest MPC meeting, warning against the rising risks of ‘status quosim’ and ‘growth sacrifice’ as a result of the Reserve Bank of India (RBI) persisting with its tight monetary policy approach, the minutes of the June 5-7 meeting released earlier

  • The headline inflation projection of 4.5% for 2024-25 gives an average real repo rate of 2% implying that the real repo rate will be above neutral for too long if the repo rate stays unchanged

  • Slowing inflation had raised real repo above unity, which would reduce real growth rate with a lag

  • Expected growth is around 7% in 2024-25 below the 8% achieved in 2023-24. 

  • Status quoism is praised as being cautious. But if doing nothing distorts real variables it aggravates shocks instead of smoothing them and raises risk

Historical context

  • Dr. Goyal stressed that it was necessary to avoid the mistake of 2015 when global crude oil prices fell substantially but the fear that they would rise again prevented an adequate cut in the policy rate. “Real interest rates rose substantially and hurt growth.”


  • RBI Deputy Governor Michael Debabrata Patra, however, said policy needed to stay focused on aligning inflation to the target or risk undermining medium-term growth.

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Learnerz IAS | Concept oriented UPSC Classes in Malayalam: MPC’s new decisions UPSC NOTE
MPC’s new decisions UPSC NOTE
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