Monetary Policy Committee
The Monetary Policy Committee (MPC) is a six-member committee within the Reserve Bank of India (RBI) responsible for formulating monetary policy. Established in 1998, the MPC aims to maintain price stability while supporting economic growth.
The committee meets at least four times a year and consists of the RBI Governor, Deputy Governor, one official nominated by the RBI Board, and three external members appointed by the Government of India. The MPC’s decisions are based on a majority vote.
Objectives of Monetary Policy in India
The main objectives of the monetary policy in India are to maintain price stability, secure financial stability, and ensure an adequate flow of credit. The Reserve Bank of India (RBI) is responsible for regulating the currency and credit system to achieve these objectives.
System Before MPC
Before the establishment of the Monetary Policy Committee, the final decision on interest rates and other monetary policy matters was made by the RBI Governor. Although there was a Technical Advisory Committee (TAC) comprising the Governor as its chairman, the Deputy Governor as its vice-chairman, and three other Deputy Governors, the Governor had overriding powers in the decision-making process. The TAC was advisory in nature, and there was no voting system.
Recommendations for MPC
Strong recommendations to set up a Monetary Policy Committee in India came from the Urjit Patel panel report. Prior to this, the Financial Sector Legislative Reforms Commission (FSLRC), headed by B N Srikrishna, had also suggested forming an MPC to meet the challenges of a growing and complex economy.
Establishment of MPC
The Monetary Policy Committee was set up in 2016 after amending the RBI Act. Before that, the Government and RBI signed a Monetary Policy Framework Agreement on February 20, 2015, tasking RBI with the responsibility for price stability and inflation targeting.
Composition of MPC
The Monetary Policy Committee is an executive body of six members. Three members are from RBI, while the other three members are nominated by the Central Government. Each member has one vote, and in case of a tie, the RBI Governor has the casting vote to break the tie. The MPC is required to meet for two days before deciding on rates and must meet at least four times a year, making its decisions public following each meeting.
Current {April 2024} members of MPC are as follows:
RBI Members
- Shaktikanta Das {RBI Governor}
- Michael D. Patra {Deputy Governor in charge of Monetary Policy}
- Rajiv Ranjan {RBI Executive Director}
Government Nominated Members
- Shashanka Bhide, Ashima Goyal, and Jayanth R. Varma {all are esteemed academicians, holding office for four years}
Mandate of MPC
The core mandate of the MPC is to fix the benchmark policy interest rate {Repo Rate} to contain inflation within the target level. RBI is mandated to furnish necessary information to the MPC to facilitate its decision. The Government can also convey its views in writing to the MPC if it wishes to do so.
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