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Wayward elephant - Price stability must remain non-negotiable

  • Writer: Editorial Writer
    Editorial Writer
  • Apr 8, 2024
  • 2 min read

Summary: The RBI's Monetary Policy Committee (MPC) has decided to maintain the policy repo rate at 6.5% for the seventh consecutive time, attributing its decision to persistent food price pressures that challenge the goal of reducing inflation to 4%. Despite the stubbornness of inflation, which has exceeded the target for 53 months, the RBI remains optimistic about India's economic growth, forecasting a 7% increase in GDP for the fiscal year. This optimism is supported by several factors, including expected normal monsoon and strong manufacturing and services sectors.


Key Points:

  • Repo Rate Unchanged: The RBI has kept the policy repo rate at 6.5%, focusing on long-term inflation control.

  • Inflation Concerns: Inflation, particularly food price inflation, remains unpredictable, with CPI readings consistently above the 4% target.

  • Economic Growth Prospects: The RBI forecasts a 7% GDP growth, buoyed by agriculture, manufacturing, and services, alongside a positive consumer confidence survey.

  • Focus on Price Stability: Achieving durable price stability is crucial for maintaining economic growth and consumer spending capabilities.


Additional Insights:

  • The MPC's decision reflects a balancing act between fostering economic growth and managing inflationary pressures. The emphasis on "a durable basis" indicates a long-term approach to achieving price stability.

  • The concern over food price inflation underscores the complex relationship between agricultural productivity, market dynamics, and global commodity prices.

  • Consumer confidence and increased spending on non-essentials signal a gradual recovery in private consumption, crucial for sustained economic growth.


Keywords Explained:

  • Monetary Policy Committee (MPC): A committee that decides the monetary policy of a country, particularly interest rates, to control inflation and stabilize the economy.

  • Repo Rate: The rate at which the central bank of a country (RBI in India) lends money to commercial banks in the event of any shortfall of funds.

  • Consumer Price Index (CPI): A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care.


Published in : The Hindu

Date appeared in newspaper : 08 April 2024


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