Stance: Calibrated Tightening / Neutral / Accommodative

Question 1

What are the three primary stances the RBI MPC can adopt after a meeting?

Answer 1

Calibrated Tightening: The RBI will either increase repo rates or keep them unchanged.
Neutral: The RBI has flexibility to either increase or decrease repo rates depending on economic conditions.
Accommodative: The RBI will likely keep repo rates unchanged and may consider decreasing them.

Question 2

Why does the RBI MPC announce a stance after each meeting?

Answer 2

The announced stance provides guidance to investors, borrowers, and bankers about the RBI’s likely future actions regarding the repo rate. This helps them make informed economic decisions.

Question 3

Is the RBI MPC legally obligated to follow the stance it announces?

Answer 3

No. The MPC can change its stance if economic conditions change unexpectedly. For instance, the MPC may announce a Calibrated Tightening stance but then decrease the repo rate if deflation becomes a concern.

Question 4

In 2022 (May-June), why did the RBI MPC increase the repo rate even though they had announced an Accommodative stance?

Answer 4

The MPC had to change its stance to fight rising inflation, even though they initially signaled potential easing of interest rates. This demonstrates the flexibility of the MPC to respond to changing economic conditions.