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Context: The Reserve Bank of India's recent decision to maintain the repo rate at 6.5%, marks the fifth consecutive time the Monetary Policy Committee has chosen to keep it unchanged.

Details

• The period from 2020 to 2023 has been characterized by substantial instability. This volatility could encompass economic, social, or geopolitical factors that have impacted India's economic landscape. Despite the volatility, India's Gross Domestic Product (GDP) growth is projected at a robust 7% for the current year. This growth indicates the economy's resilience amid challenges.
• The RBI has made significant progress in curbing inflation. Core inflation, which excludes volatile food and energy prices, has been steadily declining. This suggests that the monetary policy measures implemented by the RBI are effective. However, caution is advised due to uncertainty surrounding food prices.

MPC Alertness

• The Monetary Policy Committee (MPC) remains vigilant. They are ready to take necessary actions to ensure that inflation is maintained at the target rate of 4%. This might involve adjustments in monetary policy tools as per the evolving economic situation.
• The RBI actively manages liquidity levels in the financial system in line with the objectives of monetary policy. Adequate liquidity is crucial for economic stability and growth.
• The RBI is proactively monitoring and addressing signs of stress in various sectors and financial institutions.
• The Current Account Deficit (CAD) is anticipated to be manageable and easily financed. This indicates a reasonable balance in the country's trade and financial transactions with the rest of the world.
• India's foreign exchange reserves stand at a substantial US $640 billion. These reserves act as a buffer against global economic shocks and provide stability to the country's external position.

Conclusion

• The RBI maintains a cautious stance, emphasizing the need for an actively disinflationary policy while expressing optimism about the resilience of India's economy. The trajectory of inflation and growth in the coming months will play a crucial role in shaping future monetary policy decisions.

Must Read Articles:

MPC MEET HIGHLIGHTS: https://www.iasgyan.in/daily-current-affairs/mpc-meet-highlights

Inflation: https://www.iasgyan.in/daily-current-affairs/inflation-29#:~:text=Inflation%20measures%20the%20average%20price,items%20is%20called%20%27deflation%27.

Monetary Policy: https://www.iasgyan.in/daily-current-affairs/monetary-policy

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