Macroeconomic Implications of the Monetary Policy Committee Recommendations: An IS-LM Framework

Abstract

The paper aims to analyze the possible implications of the decisions taken by the Reserve Bank of India (RBI) in its monetary policy committee (MPC) meeting in the year 2019 for the Indian economy. The MPC is a committee of the Central Bank in India (RBI), headed by its Governor, which is entrusted with the task of fixing the benchmark policy interest rate (repo rate) to contain inflation within the specified target level. Throughout the year the MPC has reduced the policy repo rate and changed its stance from neutral to accommodative. The macroeconomic impact of such decisions has been analyzed in an IS-LM framework. The impact of the corporate tax cut done by the Finance Minister has also been analyzed using the IS-LM and AD-AS approach. The Monetary Policy Committee (MPC) is a committee of the Reserve bank of India (RBI) headed by its Governor. The MPC is entrusted with the task of fixing the benchmark policy repo rate to contain inflation within the required target level. As defined in Section 2 (iii) of the Reserve Bank of India Act, 1934 and constituted under subsection (1) of section 45ZB of the same Act MPC with the aid and advice of his internal team and a technical advisory committee, has complete control over monetary policy decisions.