The meeting of the Monetary Policy Committee (MPC) of the Reserve Bank of India i.e. RBI is starting today from Monday (7 October). This three-day meeting will continue till October 9. The decision on the interest rate will be taken in this meeting chaired by RBI Governor Shaktikanta Das.
The government on October 1 appointed three new external members to the Monetary Policy Committee, including Ram Singh, Saugata Bhattacharya and Nagesh Kumar. The MPC has 6 members, three of whom are central bank Governor Shaktikanta Das, Deputy Governor Michael Patra and Executive Director Rajeev Ranj.
Whereas, three external members are appointed by the Central Government for four years. Currently, the external members of MPC are Professor Ashima Goyal, Professor Jayant Verma and New Delhi senior advisor Shashank Bhide. His tenure is ending this week.
Ram Singh is the Director of Delhi School of Economics, Dr. Nagesh Kumar is the Director and Chief Executive of the Institute for Studies in Industrial Development. Saugata Bhattacharya is an economist.
The last meeting of the Monetary Policy Committee was held in August.
The last meeting of the Monetary Policy Committee was held in August, in which the committee did not change the rates for the 9th consecutive time. Now no change in interest rates is expected in this meeting also. The RBI Governor will give information about the decisions of the meeting on October 9 only. This meeting takes place every two months. RBI last raised rates by 0.25% to 6.5% in February 2023.
US Federal Reserve cuts interest rates by 0.5%
Earlier on September 18, the US Federal Reserve had cut interest rates by 0.5%. After this reduction made after four years, the interest rates ranged between 4.75% to 5.25%. America is the largest economy in the world, hence every major decision of its Central Bank impacts the economies around the world.
Reserve Bank increased interest rates by 1.10% 5 times since 2020
The Reserve Bank of India (RBI) cut interest rates by 0.40% twice during Corona (27 March 2020 to 9 October 2020). After this, in the next 10 meetings, the Central Bank increased interest rates 5 times, made no change four times and once cut it by 0.50% in August 2022. Before Covid, the repo rate was at 5.15% on 6 February 2020.
There may be a reduction of 0.50% in India by March 2025
- Dr VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said India could see a rate cut of 0.50% by March 2025. RBI has not made any change in interest rates after 8 February 2023. Currently the repo rate is 6.50%.
- Vijay Bharadiya, Founder, Wallfort Financial Services Ltd, said the rate cut is a bold step that could encourage other global central banks, including the Reserve Bank of India, to adopt a softer monetary stance.
Policy rate is a powerful tool to fight inflation
Any central bank has a powerful tool to fight inflation in the form of the policy rate. When inflation is very high, the Central Bank tries to reduce the money flow in the economy by increasing the policy rate.
If the policy rate is high then the loan that banks get from the Central Bank will be expensive. In return, banks make loans costlier for their customers. This reduces money flow in the economy. If money flow decreases, demand decreases and inflation decreases.
Similarly, when the economy goes through a bad phase, there is a need to increase money flow for recovery. In such a situation, the Central Bank reduces the policy rate. Due to this, the loan received by the banks from the Central Bank becomes cheaper and the customers also get the loan at a cheaper rate.
Graphics Source: VaskarAssets
