UPSC Prelims 2017 Question:

Which of the following statements is/are correct regarding the ‘Monetary Policy Committee (MPC)?

1. It decides the RBI’s benchmark interest rates. 
2. It is a 12-member body including the Governor of RBI and is reconstituted every year. 
3. It functions under the chairmanship of the Union Finance Minister.
   
   

Select the correct answer using the code given below:

Explanation: 

• Under the Reserve Bank of India, Act,1934 (RBI Act,1934) (as amended in 2016), RBI is entrusted with the responsibility of conducting monetary policy in India with the primary objective of maintaining price stability while keeping in mind the objective of growth.
  
  
• Section 45ZB of the amended RBI Act, 1934 provides for an empowered six-member Monetary Policy Committee (MPC) to be constituted by the Central Government. The MPC is required to meet at least four times in a year. The quorum for the meeting of the MPC is four members. So, statement 2 is not correct.
  • Governor of the Reserve Bank of India is the ex-officio Chairperson of the MPC. So, statement 3 is not correct.
  • Each member of the MPC has one vote, and in the event of an equality of votes, the Governor has a second or casting vote.
    
    
• The MPC determines the RBI’s benchmark interest rates (policy repo rate) required to achieve the inflation target. So, statement 1 is correct.
  
  

Therefore, option (1) is the correct answer.

Subject: Economics | Money and Banking