{"id":11859,"date":"2020-10-09T09:39:31","date_gmt":"2020-10-09T09:39:31","guid":{"rendered":"\/blog\/?p=11859"},"modified":"2020-10-09T09:40:08","modified_gmt":"2020-10-09T09:40:08","slug":"the-tone-in-the-mpc-minutes-was-hawkish-while-that-of-the-policy-was-accommodative","status":"publish","type":"post","link":"https:\/\/tata-blog.osian.dev\/blog\/wealth-services\/the-tone-in-the-mpc-minutes-was-hawkish-while-that-of-the-policy-was-accommodative\/","title":{"rendered":"The tone in the MPC minutes was \u201cHawkish\u201d while that of the Policy was \u201cAccommodative\u201d. What will be the stance of RBI in the coming bi-monthly policy meets?"},"content":{"rendered":"\n

The RBI\u2019s Monetary\nPolicy Committee (MPC) met in August 2020 to review its monetary policy for the\ncoming quarter. As the minutes of the meeting later went on to reveal, the MPC\nhad a tough time choosing between an outright dovish or blatantly hawkish move.\nThe current state of affairs was the foundation for this quandary. On the one\nhand, rising inflation was almost unanimously identified as a pressing problem.\nAnd to keep inflation in check, a hawkish move with high repo rates is one of\nthe best strategies to adopt. But on the other hand, any increase in the repo\nrates could stifle the already limited purchasing power among the public,\nleaving little room for growth.<\/p>\n\n\n\n

What do the minutes of the most recent MPC meeting reveal?<\/strong><\/h2>\n\n\n\n

The minutes of\nMPC\u2019s most recent meet, which happened in early August 2020, reveal that it was\nmarked by frustration surrounding the precarious state of India\u2019s economy. With\nthe recent rise in retail inflation acting as the primary matter of concern,\nmembers of the Monetary Policy Committee were in a well-justified predicament\nabout adopting an accommodative stance in the monetary policy.<\/p>\n\n\n\n

The law mandates\nthat the MPC is required to maintain the rate of inflation at 4% over the\nmedium term. It\u2019s also mandated to keep the rate of inflation between 2% and\n6%. If the committee fails to maintain the inflation within this approved band\nfor three consecutive quarters, the Reserve Bank of India would be required to\noffer an explanation to the government regarding the reasons for breaching the\ninflation band mandated. Such a situation would also call for immediate\nremedial measures on the part of the RBI.<\/p>\n\n\n\n

Given that the\nretail inflation in the country has been above 6% since April his year, members\nof the MPC were visibly concerned about the rising inflation rates and\nfrustrated at the minimal leeway available to take a clear stance with regard\nto the repo rates. As the deputy governor, Michael Patra, put it, \u201cTechnical\nconsiderations under the monetary policy framework warrant a pre-occupation\nwhile dealing with the conditions of failure. All this, after a period of four\nyears of uninterrupted success in keeping inflation well within the tolerance\nband. Consequently, monetary policy is forced into a standstill even when there\nis space available to persevere with its commitment to reinvigorate growth\nmomentum and alleviate the effects of covid-19.\u201d<\/p>\n\n\n\n

Additional Read:<\/strong> The\nlast meeting of the first MPC. How have they fared?<\/a><\/p>\n\n\n\n

What was the outcome of the monetary policy?<\/strong><\/h2>\n\n\n\n

Owing to the\npressure of rising inflation on the one hand and the possibility of stifling\ngrowth on the other, the RBI\u2019s Monetary Policy Committee was forced into a\nstandstill. As a result, the repo rate for this quarter remains,\nunderstandably, unchanged. The repo rate continues to be 4%, while the reverse\nrepo rate stands at 3.35%.<\/p>\n\n\n\n

Increasing the repo\nrates would cut off the purchasing power and stifle the possibility of growth,\nthereby cutting off the momentum needed for the country\u2019s economy to take a\nturn upward. On the other hand, decreasing the repo rates would lead to a\nfurther increase in the already steeply rising rates of retail inflation.\nConsidering these two opposing forces, the RBI has effectively been forced to\nretain its accommodative stance and so made no changes to the existing rates.<\/p>\n\n\n\n

\"RBI<\/figure>\n\n\n\n

What will the stance of the RBI in the coming bi-monthly policy meets be like?<\/strong><\/h2>\n\n\n\n

That effectively\nrelies on what the inflation rates look like in the coming quarter. Should the\ninflation plummet into the acceptable band of 2% to 6%, the RBI may have a bit\nmore leeway to lower the repo rates even further. On the contrary, if the\ninflation continues to remain over 6%, it\u2019s unlikely that the RBI can take a\nmore dovish approach. This current accommodative stance may continue into the\nnext quarter then, with no changes in the repo rates.<\/p>\n\n\n\n

Conclusion<\/strong><\/h2>\n\n\n\n

With inflation now\nriding the high wave and with no signs of imminent changes for the better,\nthese are uncertain times to say the least. At times like these, managing your\nfinances can be tough. And a bit of professional assistance can always prove to\nbe helpful. Tata Capital\u2019s wealth management\nsolutions<\/a> can be useful here. With the wealth management plan from Tata\nCapital, you can access tailored solutions for investing and protecting your\nwealth against the volatility that marks times of crisis like the one we\u2019re in\nright now. Take a look at the wealth management solutions offered by Tata\nCapital, so you can protect your wealth and watch it grow.<\/p>\n","protected":false},"excerpt":{"rendered":"

The RBI\u2019s Monetary Policy Committee (MPC) met in August 2020 to review its monetary policy for the coming quarter. <\/p>\n

Read More<\/a><\/p>\n","protected":false},"author":1,"featured_media":11865,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[37],"tags":[],"class_list":["post-11859","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-wealth-services"],"yoast_head":"\nWhat to infer from the Minutes of the Monetary Policy Committee Meeting - Tata Capital Blog<\/title>\n<meta name=\"description\" content=\"MPC Minutes: Know what went on in the recent MPC meeting, and what is the RBI\u2019s current stance on the monetary policy. 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