RBI leaves repo rate unchanged, food inflation uncertainty persists

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Last Updated10/02/2024

The Monetary Policy Committee (MPC) kept interest rates unchanged, emphasizing its commitment to achieving 4% inflation sustainably.
Inflation is projected to moderate to 4.5% in FY25, with real GDP growth forecasted at 7% for the fiscal year starting April 1.
Geopolitical events, supply chain disruptions, and volatility in international markets pose upside risks to inflation.

A long-term increase in the general price level of goods and services in a given economy.
It considers the pricing of most everyday or standard products and services.
- These include food, clothes, housing, recreation, transportation, consumer staples, etc.
It is positive when it helps improve consumer demand and consumption, and operate economic growth.
Even inflation is meant to keep deflation in check and is a drag on the economy.

It is a central banking policy that focuses on altering monetary policy to attain a set annual inflation rate.
Assumption: Preserving price stability, which is achieved by managing inflation, is the greatest way to generate long-term economic growth.
Under the RBI Act, 1934, the Central Government, in consultation with the RBI, determines the inflation target in terms of the Consumer Price Index (CPI), once in five years.
It provides for the constitution of a six-member Monetary Policy Committee (MPC) to determine the policy rate required to achieve the inflation target.
Currently, the RBI aims to keep inflation at 4% but will tolerate inflation between the range of 2% to 6%.

Under Section 45ZB of RBI Act, 1934, the central government is empowered to constitute a six-member Monetary Policy Committee (MPC).
Objective: To determine the Policy Rate required to achieve the inflation target
The decision of the Monetary Policy Committee shall be binding on the Bank.
Composition: The MPC shall consist of 6 members viz.
- RBI Governor as its ex-officio chairperson
- Deputy Governor in charge of monetary policy
- An officer of the Bank to be nominated by the Central Board
- Three persons to be appointed by the Central Government
- They must be persons of ability, integrity and standing, having knowledge and experience in the field of economics or banking or finance or monetary policy.