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RBI Monetary Policy Committee: Policy Ra

  May 26, 2023

RBI Monetary Policy Committee: Policy Rates Unchanged

Q. Why is this in News?

A. Recently, the Reserve Bank of India's Monetary Policy Committee (MPC) has decided to keep the policy rates unchanged, taking into account the evolving macroeconomic situation.

  • This is the second consecutive pause after a previous conservative rate hike of 250 basis points aimed at curbing inflation.
  • The decision reflects a cautious approach to balance inflation management and support economic growth.


Q. What is 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.
  • The Governor of RBI is ex-officio Chairman of the committee.
  • The MPC determines the policy interest rate (repo rate) required to achieve the inflation target.

What are the Key Announcements?

  • Policy Rates Unchanged:
    • The policy repo rate under the liquidity adjustment facility (LAF) remains unchanged at 6.50%.
    • The standing deposit facility (SDF) rate remains unchanged at 6.25%.
    • The marginal standing facility (MSF) rate and Bank Rate are maintained at 6.75%.
  • Emphasis on Inflation Management:
    • The MPC aims to withdraw accommodation gradually to align inflation with the target while supporting growth.
    • The objective is to achieve the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%.
  • Inflation Outlook:
    • Food Price Dynamics:
      • The trajectory of headline inflation will likely be influenced by food price dynamics.
        • Wheat prices may see correction due to increased arrivals and procurement at mandis.
        • Milk prices could remain under pressure due to supply shortfalls and higher fodder costs.
    • Monsoon Impact:
      • The forecast by India Meteorological Department (IMD) of a normal southwest monsoon is positive for kharif crops.
    • Crude Oil Prices and Input Costs:
      • Crude oil prices have eased, but the outlook remains uncertain.
      • Early survey results indicate expectations of firms' input costs and output prices hardening.
  • Inflation and Growth Projections:
    • CPI Inflation:
      • Assuming a normal monsoon, CPI inflation is projected at 5.1% for 2023-24.
    • GDP Growth:
      • Higher rabi crop production, anticipated normal monsoon, and robust services sector support private consumption and overall economic activity in the current year.
      • Government's emphasis on capital expenditure, moderating commodity prices, and credit growth are expected to nurture investment activity.
      • Weak external demand, geopolitical tensions, and geoeconomic fragmentation pose risks to the growth outlook.
      • Real GDP growth for 2023-24 projected at 6.5%.