RBI Governor Sanjay Malhotra: High inflation acts like a tax as repo rate hikes
GS3Economy · S&T · Environment · Security· Monetary policy, RBI & banking· Prelims + Mains·
Monetary policy and inflation targeting: a core GS3 topic regarding price stability vs growth.
Why in news
RBI Governor Sanjay Malhotra stated that high inflation acts as a tax on the public and announced a 25 basis point repo rate hike by the Monetary Policy Committee.
Background
The Monetary Policy Committee (MPC) unanimously voted to hike the repo rate by 25 basis points, marking the first increase in nearly four years. India recorded 7.8 per cent GDP growth in Q1 FY27 with 12 per cent investment growth despite September's 5.54 per cent CPI inflation.
Facts for Prelims
- FactIndia's GDP growth in Q1 FY27 was 7.8 per cent.
- FactCPI inflation in September was 5.54 per cent.
- BodyThe Monetary Policy Committee (MPC) consists of six members.
- FactRBI's inflation target is 4 per cent with a +/- 2 per cent band.
- FactThe repo rate was hiked by 25 basis points in October 2026.
Prelims practice question
What is the inflation target set by the RBI?
- (a)5 per cent with a +/- 2 per cent band
- (b)3 per cent with a +/- 1 per cent band
- (c)6 per cent with a +/- 1 per cent band
- (d)4 per cent with a +/- 2 per cent band
Show answer
Answer: (d) 4 per cent with a +/- 2 per cent band — The RBI's inflation target is 4 per cent with a +/- 2 per cent band.
For Mains
Q. Discuss how the RBI's inflation-targeting mandate influences the trade-off between price stability and economic growth in a developing economy like India.
Dimensions to cover in your answer
- Monetary policy transmission: Impact of repo rate hikes on the cost of credit and private investment.
- Supply-side shocks: Challenges in controlling inflation driven by food and fuel price volatility.
- Inflation-targeting framework: Balancing the 4% target with the necessity of maintaining 7.8% GDP growth.
Keywords: Monetary Policy · Inflation Targeting · Repo Rate · Price Stability · Cost of Credit · Supply-side Inflation
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