UPSC Daily Editorial Analysis | Focused on Inflation | 8th August, 2022

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What the article is about:
  • The article talks about recent hike in benchmark interest rate by RBI’s monetary policy committee.
 
Relevance:
  • GS3: Economy 
 
Analysis:
  • RBI’s MPC( monetary policy committee) has raised the policy Repo Rate by 50 basis points to contain the inflation.
Monetary policy committee:
  • The Monetary Policy Committee (MPC) is a committee constituted by the Central Government and led by the Governor of RBI.
  • Monetary Policy Committee was formed with the mission of fixing the benchmark policy interest rate (repo rate) to restrain inflation within the particular target level.
  • MPC was constituted under the Reserve Bank of India Act, 1934 as an initiative to bring more transparency and accountability in fixing the Monetary Policy of India. 
Repo rate: 
  • Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds.
  • Repo rate is used by monetary authorities to control inflation.
 
Causes of high inflation:
  • RBI governor remarked, “disquietingly, globalisation of inflation is coinciding with de globalisation of trade” this is acting as a catalyst to already rising inflation.
  • Russia’s invasion of Ukraine and the resultant impact on trade flow have upended supply chains for several commodities and added to price pressure.
  • The latest geopolitical tensions triggered in East Asia by U.S. house speaker nancy Pelosi’s visit to Taiwan could also impact global trade.
Conclusion:
  • RBI governor’s confidence in the “resilience” of economy would help anchor price gain expectations, and surely enhance the RBI’s inflation-fighting credentials



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