HAWKISH MONETARY POLICY OF RBI

 Monetary policy refers to the Central Bank's policy of regulating the supply and demand for money with the available policy instruments in the country.Im India Reserve Bank of India's Monetary policy Committee (MPC -the six member committee constituted to take monetary policy decisions)in its February 2024 meeting decided to retain its policy rates unchanged on the basis of an assessment of the current status and evolving macro economic developments.The monetary policy instruments employed by Central Banks usually are bank rate, reserve ratio, open market operations and selective credit control measures.RBI retained the earlier policy rates intact as the repo rate stood at 6.50 %, reverse repo rate 3.75% , Marginal Standing facility (MSF) rate 6.25% and the standing deposit facility rate at 6.25% . Even though MPC remained resolute to achieve the medium term target for the consumer price index  (CPI) inflation at 4% within a band of +/-2 percent,while supporting growth ,five out of 6 members of MPC remained focused on the withdrawal of accomodation to ensure that the inflation progressively aligns with the target.RBI is determined that while supporting growth the monetary policy must continue to be actively disinflationary.Since the focus and primary objective of the monetary policy remained stubborn on inflation control the policy is termed as hawkish. Hawkish monetary policy refers to keeping a "sharp eye" on inflation and swooping to control it.Hawks generally believe that the primary goal of  monetary policy should be to control inflation even if it means slowing down economic growth. They favour raising interest rate to keep inflation under check. On the contrary advocates of Dovish policy favour monetary policy of low interest rate . Advocates of dovish policy believes that low interest rates are necessary to stimulate borrowing, promote investment, and achieve economic growth and generate employment. 

 Inflation control is very vital as otherwise it may adversely affect different social groups including marginalised sections  of the society. India has had supply chain disruptions  especially in edible oil and petroleum products and high volatility in food prices largely depending on geopolitical factors and climate change that impact global market conditions. India experienced moderately high inflation from 2013 to 2022 generally oscillating between 4-6% due to factors like domestic economic conditions monsoon patterns, changes in agricultural output and policy decisions. However in the past decade until 2022 consumer price inflation in the country averaged 5.5%.CPI inflation which stood at 2.9%in 2018 increased to 5.8 in 2019,5.5 in 2020,7.0 in 2021,and 5.7 in 2022.Volatilities were also observed in the current year swinging between 4.3% and 7.4% .If CPI inflation is  declining to 4% on a durable basis RBI projected CPI inflation at 4.5% for the financial year 2024-25 with rise for four quarters in the range of 5%,4.7%,4.6% and 4.7%, assuming that macroeconomic fundamentals including GDP growth remains strong. It may be noted here that in times of liquidity tightening RBI had made effective intervention by prevailing in the money market to tackle the issue. Headline retail  inflation which had eased from 7.4% in June 2023 to 4.87 % in October 2023 further rebounded to  a four month high of 5.69%.The MPC on the other hand revised downward the retail inflation projection of january-March to 5.0 % assuming favorable rabi crop and vegetable prices. 

 India's consumer price inflation has been subjected to wild fluctuations due to changes in food prices, global supply chain disruptions in the context of emerging geopolitical tensions and climate change. In the current fiscal year itself  quarterly estimates varied between 4.3% and 7.4%.It may be also noted here that in India the consumer price index is estimated based on a basket of  299 items.This basket was created in 2012 and hence it is relatively obsolete to measure adequately the current real consumption behaviour. Moreover shifting to online consumption in recent years dramatically changed the consumption habits of urban and semi urban households especially during and after COVID-19. .Accordingly appropriate revision of the consumption basket for  CPI is inevitable. Since the projected GDP growth rate is on the higher side following the Hawkish policy by RBI for the time being can be justified.In any case monetary policy is more suitable to achieve price stability.On the other hand supply side interventions through fiscal policy can moderate cost push inflation.Appropriate policy mix and coordination of both monetary and fiscal policies are always advisable to achieve desired economic objectives.However RBI should effectively manage mushrooming of fintech companies their different financial products  and crypto currencies along with routine banking,non banking institutions and, should be vigilant against the misuse of Artificial Intelligence and Machine learning to committ financial frauds.