Monetary Policy Committee (MPC)

Monetary Policy Committee Latest News

Reserve Bank of India (RBI) recently appointed Indranil Bhattacharyya, executive director, as a member of the Monetary Policy Committee (MPC).

About Monetary Policy Committee

• Monetary policy refers to the use of monetary instruments under the control of the central bank to regulate magnitudes such as interest rates, money supply, and availability of credit with a view to achieving the ultimate objective of economic policy.
• The RBI is vested with the responsibility of conducting monetary policy. This responsibility is explicitly mandated under the Reserve Bank of India Act, 1934.
• The primary objective of monetary policy is to maintain price stability while keeping in mind the objective of growth. Price stability is a necessary precondition to sustainable growth.
• In May 2016, the RBI Act, 1934, was amended to provide a statutory basis for the implementation of the flexible inflation targeting framework.
• The amended RBI Act also provides for the inflation target to be set by the government of India, in consultation with the Reserve Bank, once in every five years.
• The Monetary Policy Committee (MPC) constituted by the central government under Section 45ZB determines the policy interest rate required to achieve the inflation target.
• Function: The MPC is entrusted with the task of fixing the benchmark policy rate (repo rate) required to contain inflation within the specified target level. 
• The MPC replaced the previous arrangement of the Technical Advisory Committee.
• Composition:
  • MPC will have six members: the RBI Governor (Chairperson), the RBI Deputy Governor in charge of monetary policy, one official nominated by the RBI Board, and the remaining three members would represent the Government of India.
  • The external members hold office for a period of four years.
• The quorum for a meeting shall be four Members, at least one of whom shall be the Governor and, in his absence, the Deputy Governor, who is the Member of the MPC.
• The MPC takes decisions based on a majority vote. In case of a tie, the RBI governor will have the second or casting vote.
• The decision of the MPC would be binding on the RBI.
• RBI’s Monetary Policy Department (MPD) assists the MPC in formulating the monetary policy.
• The MPC is required to meet at least four times in a year.

Source: LM

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