With inflation set to remain above 5%, rate cut unlikely this fiscal

Last Updated12/08/2023

The Reserve Bank of India’s inflation projection has belied hopes for a reduction in the interest rates in the current financial year (2023-24).
It will help in aligning inflation with the central bank’s target of inflation.
The retail inflation is expected to remain elevated due to high vegetable and foodgrain prices.

It is a central banking policy that focuses on altering monetary policy to attain a set annual inflation rate.
It is founded on the assumption that preserving price stability, which is achieved by managing inflation, is the greatest way to generate long-term economic growth.
Under the RBI Act, 1934, the Central Government, in consultation with the RBI, determines the inflation target in terms of the Consumer Price Index (CPI), once in five years.
It provides for the constitution of a six-member Monetary Policy Committee (MPC) to determine the policy rate required to achieve the inflation target.
Currently, the RBI aims to keep inflation at 4% but will tolerate inflation between the range of 2% to 6%.

Under Section 45ZB of RBI Act, 1934, the central government is empowered to constitute a six-member Monetary Policy Committee (MPC).
Objective: To determine the Policy Rate required to achieve the inflation target
The decision of the Monetary Policy Committee shall be binding on the Bank.
Composition: The MPC shall consist of 6 members viz.
- RBI Governor as its ex-officio chairperson
- Deputy Governor in charge of monetary policy
- An officer of the Bank to be nominated by the Central Board
- Three persons to be appointed by the Central Government
- They must be persons of ability, integrity and standing, having knowledge and experience in the field of economics or banking or finance or monetary policy.