Monetary Policy Committee

In India, the monetary policy is responsibility of RBI. RBI regulates the currency and credit system to secure the monetary stability in India. The main objectives of the monetary policy in India are to maintain the price stability, securing the financial stability and to ensure the adequate flow of credit.

System Before MPC

Before establishment of Monetary Policy Committee, the final decision on interest rates etc. would come from RBI Governor’s desk. Though there was a Technical Advisory Committee (TAC) comprising of governor as its chairman, the deputy governor as its vice-chairman and other 3 deputy governors to decide on monetary policy yet, the Governor had overriding powers upon the decision making process. The TAC was advisory in nature and there was no voting system there.

Recommendations For MPC

Strong recommendations to set monetary policy committee in India had come from Urjit Patel panel report. Prior to this, the B N Srikrishna headed Financial sector legislative reforms Commission (FSLRC) had also suggested framing a MPC to meet the challenge of the growing complex economy.

Setting up of MPC

The Monetary Policy Committee was set up in 2015 after amending the RBI Act. Before that, Government and RBI made an agreement via which Government tasked RBI with the responsibility for price stability and inflation targeting. In context, a Monetary Policy Framework Agreement was signed on February 20, 2015.

Composition of MPC

Monetary Policy Committee is an executive body of 6 members. Of these, three members are from RBI while three other members are nominated by the Central Government. Each member has one vote. In case of a tie, the RBI governor has casting vote to break the tie. MPC is required to meet for two days before deciding on rates. Further, it is needed to meet at least four times a year and make public its decisions following each meeting.

Current {October 2016} members of MPC are as follows:

RBI Members

  • Urjit Patel {RBI Governor}
  • R Gandhi {Deputy Governor Incharge of Monetary Policy}
  • Machael Patra {RBI Executive Director}

Government Nominated Members

  • Chetan Ghate, Pami Dua and Ravindra H Dholakia {all of them are esteemed academicians, they will hold office for four years}

Mandate of MPC

The core mandate of MPC is to fix the benchmark policy interest rate {Repo Rate} to contain inflation within the target level. In that context, RBI is mandated to furnish necessary information to the MPC to facilitate its decision. Government also, if wishes to convey its views, can do so in writing to MPC.

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