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
