What is the Monetary Policy Committee?

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What is the Monetary Policy Committee? Blog Image

Overview:

The Monetary Policy Committee (MPC) of the Reserve Bank of India recently increased the repo rate by 35 basis points (bps) to 6.25%, and the Standing Deposit Facility stands raised to 6%.

Why in the News?:

  • Since May, the board has now increased the key rate by 225 bps in FY23.
    • A 100 basis points equal one percentage point.
  • Retail price inflation in India reduced to 6.77 percent YoY in October 2022 from a five-month high of 7.41 percent in September, 2022.
  • However, the fact that it continued to be above the central bank's acceptable limit of 2 to 6 percent for a tenth consecutive period prompted RBI to raise the repo rate for the fifth time.
  • Inflation is expected to be 6.7% this year, with CPI inflation for the first quarter of 2023-24 projected at 5% and the second quarter at 5.4% on the assumption of a normal monsoon.
  • The central bank’s key committee also marginally lowered the GDP projection to 8% for 2022-23, with the third quarter registering 4.4% growth.
  • The rupee has appreciated by 3.2% in real terms even as several other currencies have dropped.

 

Monetary Policy Committee 

  • The Monetary Policy Committee of India is responsible for fixing the policy interest rate, to achieve the objectives of monetary policy.

 

Composition:

  • Three officials of the Reserve Bank of India, with Governor of RBI as Chairperson, ex officio
  • Three external members appointed by the Government of India
  • The external members hold office for a period of four years.
  • Decisions of the MPC are taken on the basis of majority, with Governor having the casting vote in case of a tie.
  • The MPC meets least 4 times a year and it publishes its decisions after each such meeting.

 


Q1) What is CPI?

The Consumer Price Index (CPI) is a measure of the average change overtime in the prices paid by urban consumers for a market basket of consumer goods and services.

Source: The Hindu