Context:
India’s retail inflation may have spiked close to or over the 6% upper tolerance threshold of the Reserve Bank of India (RBI) in July, owing to a broad-based uptick in food prices.
About Retail Inflation:
- Rate at which the prices of goods and services in an economy increase over time.
- Other Name – Consumer Price Index (CPI) inflation.
- Measures the average price change in a basket of commodities and services over time.
- Measurement of Rate of Inflation in India using Consumer Price Index – combined (Base year- 2012).
- 2 types –
- Demand pull inflation – Arises when demand surpasses supply.
- Cost push inflation – Occurs due to reduced supply, raising production costs.
About Inflation Targeting:
- Established through the Monetary Policy Framework Agreement – 2015
- Founded on the premise of maintaining price stability.
- RBI and the government established inflation targeting through the Monetary Policy Framework Agreement – 2015.
- Inflation target: 4% with +/- 2% tolerance.
Monetary Policy Committee (MPC):
- Statutory body under Reserve Bank of India Act 1934.
- Led by – RBI Governor.
- Recommended by–UrjitPatel Committee.
- Objective – maintain price stability while keeping growth in mind.
- Composition –6 members (including the Chairman) [RBI officials & nominated members – 3 each]
- Meeting – At least 4 times a year with a quorum of 4 members.
- Publish report in every 6 months.
Source: The Hindu
Previous Year Question
Which of the following statements is/are correct regarding the Monetary Policy Committee (MPC)?
- It decides the RBI’s benchmark interest rates,
- It is a 12-member body including the Governor of RBI and is reconstituted every year.
- It functions under the chairmanship of the Union Finance Minister.
Select the correct answer using the code given below:
[UPSC Civil Services Exam – 2017 Prelims]
(a) 1 only
(b) 1 and 2 only
(c) 3 only
(d) 2 and 3 only
