The RBI Monetary Policy: Accommodative, Neutral, Hawkish Stances

The RBI Monetary Policy Committee (MPC) is announcing its take on the upcoming monetary policy in India, on February 10. Analysts and economists are discussing all the possibilities of the announcement if the RBI will take an accommodative, neutral, or hawkish stance. Currently, the repo rate is 4%, and the reverse repo rate is 3.35%, as per RBI's decision. Repo rate is one of the key policy measures to keep inflation under control. Some of the analysts are thinking that the RBI can take neutral stances from accommodative stances.

The accommodative stance by the RBI

The RBI has been taking the accommodative stance in its monetary policy meeting for a long time now. By an accommodative stance, the RBI boosts the economy. Through this stance, monetary supports and supply are pushed in a significant amount. Additionally, reducing the interest rate is another factor for an accommodative stance. Due to the economic slowdown, that occurred for the pandemic, this stance has been taken by the RBI to meet the country's demands for monetary support. Taking loans is more affordable during this monetary policy.

The neutral stance by the RBI

By the neutral stance, the RBI can reduce the rate or hike the interest rate, however, the bank will not commit to this. The central bank follows this when the economy needs to focus on both inflation and growth trajectory. The decision on rate hike or reduction will be impacted by the upcoming data, and the central bank can decide it at any time. So, the equity and assets markets can become a bit volatile.

The hawkish stance by the RBI

The high inflation rate is directly connected to a hawkish stance. To control the high inflation rate, RBI can take this policy, by which the interest rate will be hiked. Additionally, monetary infusion into the economy will be reduced. With an interest rate hike by the RBI, the lending banks will also hike the interest rate on loans. By this, the financial demand for loans is tightened.

At the current moment in India, the RBI can take either an accommodative or neutral stance in the monetary policy meeting.