- According to experts,the Reserve Bank of India’s Monetary Policy Committee (MPC) may cut the interest rate to boost up the economic growth which dropped to a five-year low in the final quarter of 2018-19.
- The rate cut is needed to address weakening credit availability as Non-banking financial companies(NBFCs) remain in turmoil representing a significant bottleneck in the supply of credit to micro, small and medium-sized enterprises that also flows through to discretionary consumer demand.
- However,food inflation will play an important role in the decision of rate cut. Between December 2018 and April 2019,annual wholesale price inflation for food articles has risen from minus 0.42% to 7.37%.
- Further,the last few months have seen prices of a host of farm commodities go up mainly on the back of (a)drought in large tracts of western and southern India and (b)Pre-monsoon rainfall which was below the normal average.
- The Monetary Policy Committee(MPC) is a committee of the Reserve Bank of India.It is headed by its Governor which is entrusted with the task of fixing the benchmark policy interest rate (repo rate) to contain inflation within the specified target level i.e.inflation targeting.
- Wholesale Price Inflation tracks changes in the price of goods in stages before the retail level i.e. goods that are sold in bulk and traded between organizations instead of consumers.
6 min read