Monetary Policy: backbone of monetary stability

In February 2015 RBI and government of India signed the monetary policy framework agreement in would be a legal responsibility of RBI to manage both inflation and growth under a characteristics known as flexible inflation targeting. example 4 plus(+) minus(-) 2 where plus minus mean standard deviation. 4plus minus was introduced because in the past 100 years only those emerging economies enter in to group of developed economy which have manage their inflation in the band of management 2 to 6 percent. 

Earlier in the RBI Governor or monetary policy creator were not legally responsible for any breach of inflation targeting alter 2015 governor and monetary policy committee towards a parliamentary law to manage inflation with in the bond. Structure of monetary policy committee-6 member body RBI Governor is the chairman M.P.C, deputy governor is in charge of monetary policy. One member nominated by RBI board and 3 member are going to be nominated by G.O.I , RBI legal responsibility- to manage inflation and growth. Monetary policy stance (1) Accommodative - when central bank is prepared to expand the money supply and to boost economic growth. And this stance is known as expansionary or easy monetary policy.

 During the period of corona from April 2020-21 the monetary policy stance or outlook of all the central bank all over the world was accommodative. (2) Tightening- means central bank is prepared to reduce the money supply in order to reduce the inflation as a result the central bank is going to increase the benchmark interest rate or repo rate it is also known as contractionary monetary policy. From April 2021-2022 the world economy has witnessed has an unprecedented cost push inflation which prompt every commodity to be very expensive in order to counter. It central bank all over the world adopted the policy of reducing the money supply commonly known as tightening. (3) Neutral-central bank is prepared to neutral neither expand neither reduce money supply. 

Withdrawal of accommodation-from 2022-24 the monetary policy of withdrawal of accommodation which primarily means reducing the money supply in order to counter the CPI inflation but unlike USA which has a straight forward. India adopted a midway to reduce risk related inflation. Basis of monetary policy stance- forward looking survey of RBI, consumer confidence survey, inflation expectation survey and calculate the order book, capacity utilization and inventory various small company actually depicts overall demand of the economy. 

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