Explanation:

• Monetary policy essentially deals with the supply and cost (interest rates) of money in an economy. The RBI’s MPC meets every two months to assess the state of monetary activities, and may tweak the repo rate — the interest rate at which the RBI lends to commercial banks — in a manner that reduces price fluctuations in the economy while keeping the inflation rate (the rate at which the general price level in the economy grows) at a reasonable level.
• There are two aspects to any monetary policy: the decision on repo rate, and the “stance” of the policy. While changes to the repo rate affect the broader economy in terms of whether loans — for homes, cars, or factories — will be costlier or cheaper, the policy stance opens a window into how members of the MPC see the inflation and economic growth situation. The panel indicates its broader policy approach by guiding the markets with policy stances. MPC's decision on the repo rate will have an immediate effect on interest rates in the economy. But it is not the case with the stance as it is just indicative in nature.
• Various stances of RBI
• An accommodative stance means the central bank is prepared to expand the money supply to boost economic growth. The central bank, during an accommodative policy period, is willing to cut interest rates. A rate hike is ruled out. The central bank typically adopts an accommodative policy when growth needs policy support and inflation is not the immediate concern.
• A ‘neutral stance’ suggests that the central bank can either cut rate or increase rate. This stance is typically adopted when the policy priority is equal on both inflation and growth. The interest rate can move to either sides depending on incoming data.
• A hawkish stance indicates that the central bank expects high inflation in the economy and its top priority is to keep inflation low. During such a phase, the central bank is willing to hike interest rates to curb the money supply and thus reduce the demand. A hawkish policy also indicates tight monetary policy. A rate cut is nearly certain during such a period.
• The central bank typically gives policy guidance to financial markets (through its stance) so that all types of investors can make informed decisions. The MPC is not bound to follow its stance, meaning if the policy . 23 www.visionias.in ©Vision IAS stance to markets is accommodative, it is not mandatory on part of the MPC to cut rates in the future. Future actions of the MPC will be dependent on incoming data. If one looks at the stated policy stance and actual actions by the central bank in the last four years, out of fourteen monetary policy actions, where it has stated ‘accommodative’ stance, the RBI has cut rates on six occasions and left rates untouched on eight occasions. Hence if RBI maintained the policy stance at withdrawal of accommodation it may or may not lead to an increase in the interest rates in the future.
• Recent MPC stance: Since retail inflation has been outside RBI’s comfort zone of 2% to 6% for 10 of the past 12 months, the monetary policy committee has continued to retain its 'Withdrawal of Accommodation' stance to bring down high inflation, especially the core inflation. This may be considered a hawkish stance as RBI is more concerned about high inflation than about the moderation in economic growth. Hence option (d) is the correct answer.