GS3GS1
Discuss the perceived successes and challenges of implementing inflation targeting under the new Monetary Policy Committee (MPC) regime.
Main Body
Monetary Policy Framework Agreement, 2015 led to establishing of Monetary Policy Committee with a aim to keep headline CPI at 4+/- 2.
1Inflation within tolerance band before pandemic.
2Although inflation at FY23 was 6+%, it is much less than global economies like Germany at 11%.
3Balancing growth with inflation has been possible.
4Providing state like 'Accommodative', 'hawkish', etc. signals businesses in advance who can adjust production factors.
'hawkish', etc. signals businesses in advance who can adjust production factors.
[Challenges at MPC]
1Inflation not solely driven by monetary policy. Eg: Demand pull inflation in FY25 due to rising oil, fertilizer prices on which MPC has no control.
2Lag in control: Rate increase lagged 3-4 months after Russia-Ukraine start.
3Interest contradiction: RBI needs to offer higher rates on G-Sec while keep inflation under control which leads to high rates.
Yesterday (13th August), MPC elected to keep Repo Rate at 6.5% to ensure inflation control with growth.
161 words5 paragraphs
- Clear articulation of MPC framework
- Use of comparative analysis (Germany at 11%)
- Discussed signaling mechanism for businesses
- Quantitative data provided (FY23 6%+)
Topper
Aniket Dnyaneshwar Hirde
Subject & Paper
GS3GS1
Topic
Resource Distribution & Industries
Generic Resource based
Monetary Policy and inflation targeting
Writing Stats
161
Total words
5
Paragraphs