The meeting of the Monetary Policy Committee (MPC) of the Reserve Bank of India i.e. RBI is starting today from Monday (October 7). The three-day meeting will continue till October 9. A decision on interest rates 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.
While the central government appoints three external members for four years. Currently, the external members of the MPC include Professor Ashima Goyal, Professor Jayant Verma and Senior Advisor Shashank Bhide from New Delhi. His term ends 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, with the committee leaving rates unchanged for the ninth time in a row. Now no change in interest rates is expected in this meeting as well. The RBI Governor will inform about the decisions of the meeting on October 9 itself. This meeting is held every two months. RBI last hiked rates by 0.25% to 6.5% in February 2023.
The US Federal Reserve cut interest rates by 0.5%
Earlier on September 18, the US Federal Reserve cut interest rates by 0.5%. After four years of this reduction, the interest rates are between 4.75% to 5.25%. America is the world's largest economy, so every major decision by its central bank affects economies around the world.
The Reserve Bank has hiked interest rates five times since 2020 by 1.10%
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 raised interest rates five times, left it unchanged four times and cut it once by 0.50% in August 2022. Before Covid, the repo rate was 5.15% on 6 February 2020.
India may see a decline of 0.50% by March 2025
- Chief Investment Strategist at Geojit Financial Services Dr. V.K. Vijayakumar said that a rate cut of 0.50% could be seen in India by March 2025. RBI has not changed interest rates after 8 February 2023. Currently the repo rate is 6.50%.
- Wallfort Financial Services Ltd founder Vijay Bharadia said the rate cut was a bold move that could encourage other global central banks, including the Reserve Bank of India, to adopt a dovish 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 policy rate. When inflation is too high, the central bank tries to reduce the flow of money into the economy by raising policy rates.
If the policy rate remains high, the loans that banks get from the central bank will become expensive. In turn, banks make loans more expensive for their customers. This reduces the flow of money in the economy. If the flow of money decreases, demand decreases and inflation decreases.
Similarly, when the economy goes through a bad phase, the recovery needs to increase the flow of money. In such a situation, the central bank reduces the policy rate. Because of this, the loans from the central bank become cheaper for the banks and the customers also get loans at cheaper rates.
Image Credit: (Divya-Bhaskar): Images/graphics belong to (Divya-Bhaskar).
