The Monetary Policy Committee(MPC) is constituted by the Central Government and led by the Governor of RBI.
The mandate of Monetary Policy Committee(MPC) is to fix the benchmark policy interest rate (repo rate) to restrain inflation within the particular target level(4% +/-2%).
Initially, the main decisions related to interest rates were taken by the Governor of RBI alone before the establishment of the committee. MPC was constituted under the Reserve Bank of India Act, 1934 as an initiative to bring more transparency and accountability in fixing the Monetary Policy of India.
Key Takeaways of Monetary Policy Committee(MPC)
- Monetary Policy Committee (MPC) was constituted as per Section 45ZB under the RBI Act of 1934 by the Central Government.
- The committee determines the policy interest rate required to achieve the inflation target.
- Once every six months, the Reserve Bank is required to publish a document called the Monetary Policy Report to explain the sources of inflation and the forecasts of inflation for 6-18 months ahead.
- Urijit Patel Committee first proposed the idea for the formation of Monetary Policy Committee
- MPC is assisted by the Monetary Policy Department (MPD) of the Reserve Bank in the formulation of the policy
- The MPC is required to meet at least four times in a year.
- The quorum for the meeting of the MPC is four members.
- 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.
- External members of MPC hold office for a period of four years or until further orders, whichever is earlier.
- The external members are not allowed to be reappointed.
(a) Governor of the Reserve Bank of India — Chairperson, ex officio;
(b) Deputy Governor of the Reserve Bank of India, in charge of Monetary Policy —Member, ex officio;
(c) One officer of the Reserve Bank of India to be nominated by the Central Board —Member, ex officio;
(d) Prof. Ram Singh, Director, Delhi School of Economics, University of Delhi —Member;
(e) Shri Saugata Bhattacharya, Economist — Member; and
(f) Dr. Nagesh Kumar, Director and Chief Executive, Institute for Studies in Industrial Development, New Delhi — Member.