Monetary Policy Committee Report: February 2024

11 Feb, 2024

Reference-

The “Monetary Policy Committee” (MPC) of RBI presented its bi-monthly report on February 8, 2024.

The major decisions of the Monetary Policy Committee are as follows,

Repo rate unchanged at 6.50 percent
Reverse repo rate is 3.75%
Bank rate unchanged at 6.75 percent
Fixed deposit facility rate unchanged at 6.25 percent
Marginal Standing Facility rate unchanged at 6.25%
Real GDP growth is estimated at 7.0 percent in fiscal year 2024-25 and 7.2 percent in the first quarter .
These decisions are in line with the objective of achieving inflation within the band of +/- 2 per cent of 4 per cent.
This is the sixth consecutive time that key rates have not been changed.
This is also the sixth consecutive monetary policy report to come after the announcement of the interim budget on February 1 , 2024 .

Uncertainty in food prices continues to impact core inflation
Inflation rate is expected to be 4.5% in the financial year 2024-25
The growth rate will remain intact even in the financial year 2024-25
Rupee will stabilize, which is a sign of strength in the Indian economy.
Rural demand will continue to rise and urban consumption will also remain strong.
Manufacturing sector will continue to be profitable
Private capital expenditure cycle will improve
There is a possibility of improvement in business practices
There are investment opportunities due to good balance sheets of banks and corporates
The improving global trade outlook and increasing integration into global supply chains will support net external demand.
Geopolitical turmoil and instability in international financial markets may create adverse circumstances.

It is constituted by the Central Government under Section 45ZB of the RBI Act, 1934 (as amended in 2016) .
Its purpose is to set the policy rate necessary to achieve the inflation target .
There are 6 members in this committee-
Governor (ex-officio Chairman) of RBI
Deputy Governor (in charge of monetary policy, ex officio member)
An officer (ex-officio member) nominated by the Central Board of RBI
3 members appointed by the Central Government (tenure for a term of 4 years or until further orders, whichever is earlier)
Its meetings are held at least 4 times a year , for which the quorum is 4 members .

Repo rate is the interest rate at which RBI lends money to commercial banks on the condition of repurchase of the security.
Commercial banks borrow money from RBI to meet their short term liquidity needs.
It is also called repurchase rate.
It is used to control inflation.

The interest rate at which commercial banks deposit their liquidity surplus with RBI for short term or provide loans to it is called reverse repo rate.
It is used to reduce liquidity.

The interest rate at which RBI provides long term loans to commercial banks is called bank.
Through this, the credit creation capacity of commercial banks is affected.

Under this, commercial banks can give as much money as they want to RBI at a rate lower than the reverse repo rate without any guarantee (security).
It helps RBI to absorb excess liquidity (deposits) from commercial banks without giving government securities.
Its idea was first given in the year 2014 in the report of Urjit Patel Monetary Policy Committee .
RBI announced to launch it in the year 2022.

The interest rate at which RBI provides overnight loans to scheduled commercial banks is called MSFR.
Its objective is to overcome the liquidity problem of banks in case of emergency.
Under this, only scheduled commercial banks can get loans from RBI.
The interest rate on loans availed under MSFR is 1% above the repo rate.
It was started by RBI in May, 2011.