Question

Who determines the policy interest rate required to achieve the inflation target?
1. Central Bank of India
2. Technical Advisory Committee (TAC)
3. World Economic Forum (WEF)
4. Monetary Policy Committee (MPC)

Answer 1

Correct Answer - Option 4 : Monetary Policy Committee (MPC)

the correct answer is the Monetary Policy Committee (MPC).

• The policy interest rate required to achieve the inflation target is decided by the Monetary Policy Committee (MPC). MPC is a six-member committee constituted by the Central Government (Section 45ZB of the amended RBI Act, 1934). The MPC is required to meet at least four times a year.

• ​What Is Inflation Targeting?
  • Inflation targeting is a central banking policy that revolves around adjusting monetary policy to achieve a specified annual rate of inflation. The principle of inflation targeting is based on the belief that long-term economic growth is best achieved by maintaining price stability, and price stability is achieved by controlling inflation.
  • Inflation targeting is a central bank strategy of specifying an inflation rate as a goal and adjusting monetary policy to achieve that rate. 
  • Inflation targeting primarily focuses on maintaining price stability but is also believed by its proponents to support economic growth and stability. 
  • Inflation targeting can be contrasted to other possible policy goals of central banking, including the targeting of exchange rates, unemployment, or national income     .
• Six MPC members
  • Ashima Goyal.
  • Shashanka Bhide.
  • Jayanth R. Varma.
  • Shaktikanta Das.
  • Mridul Saggar
  • Jayanth R. Varma

• What is Inflation?
  •  Inflation refers to the rise in the prices of most goods and services of daily or common use, such as food, clothing, housing, recreation, transport, consumer staples, etc.
  • Inflation measures the average price change in a basket of commodities and services over time.
  • The opposite and rare fall in the price index of this basket of items is called ‘deflation’.
  • Inflation is indicative of the decrease in the purchasing power of a unit of a country’s currency. This could ultimately lead to a deceleration in economic growth.
  • However, a moderate level of inflation is required in the economy to ensure that production is promoted.