Monetary policy stance

Indian Economy glossary

Also called: Accommodative stance, Neutral stance, Withdrawal of accommodation, Hawkish, Dovish · Topic: Banking, Credit Creation and Monetary Policy · NCERT: Beyond NCERT

Meaning

The monetary policy stance tells markets which way the central bank is likely to move next. In India, the Monetary Policy Committee (MPC) announces it along with the repo rate. The stances are:

  • Accommodative: ready to ease, by cutting rates or adding liquidity.
  • Neutral: can move either way, depending on the data.
  • Withdrawal of accommodation: tightening.

Hawkish describes a bias towards tightening to fight inflation. Dovish describes a bias towards easing to support growth. The stance shapes what markets expect, even before rates actually change.

Example

The RBI's stance was "withdrawal of accommodation" from 2022 to Oct 2024. During this period, the repo rate rose by 250 bps, from 4% to 6.5%, between May 2022 and Feb 2023. In Oct 2020, the RBI said it would stay accommodative "at least during the current financial year and into the next".

Don't confuse with

  • Repo rate decision: the rate decision is what the MPC does today. The stance signals the direction of what it is likely to do next.

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