Page 18 - Insurance Times May 2019

Cover Story

RISK

MANAGEMENT

THROUGH

MONETARY

POLICY

Introduction 2. Risk Measurement
Reserve Bank of India (RBI) produces once in every two 3. Risk Management
months monetary policy through Monetary Policy Committee 4. Risk monitoring and
(MPC). The primary objective of monetary policy is to
5. Risk reporting.
maintain the price stability (inflation) and growth (GDP).
This write-up consider inflation and GDP as a risk factor to Risk Identification
the Government of India in managing the economy of the The first step of risk management is risk identification,
country. While the risk mitigating tools are repo rate, reverse without the identification of the risk, we cannot do risk
repo rate etc. The article will look at the monetary policy management. So what is the risk with respect to the
through the lens of risk management.
economy that monetary policy addresses? The risk is that
the inflation will be out of the defined band and GDP will
There are five steps of risk management, they are
be lower than projected.
1. Risk Identification
About the author According to the RBI act that provide the inflation target to
be set by the Government of India, in consultation with RBI
once in every five year. For the period of August, 5 2016 to
Sonjai Kumar March 31, 2021, the target set is 4% CPI inflation with upper
tolerance of 6% and lower tolerance of 2%.
CMIRM, Independent Risk
Management Consultant,
Ambassador in India of Institute of The government will consider it as a failure if average
Risk Management, London inflation is more than upper tolerance (6%) for three
successive quarters; similarly, failure to consider if the

18 The Insurance Times, May 2019