Monetary Policy Committe
- Context: The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) began its three-day policy meeting in Mumbai, with experts widely expecting the central bank to maintain the status quo on interest rates amid volatile global conditions driven by ongoing tensions in West Asia.
Meaning of Monetary Policy
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- Monetary policy refers to the use of central bank instruments to regulate interest rates, liquidity (money supply), and credit availability in order to achieve overall economic objectives.
- In India, the Reserve Bank of India is empowered to conduct monetary policy under the RBI Act, 1934.
Core Objective
- The main goal is to maintain price stability, while also supporting economic growth.
- The underlying idea is that stable prices are essential for long-term and sustainable development.
Monetary Policy Committee (MPC): Role and Purpose
- Its primary responsibility is to decide the policy interest rate required to achieve the inflation target.
- It replaced the earlier mechanism where decisions were influenced by the Technical Advisory Committee.
Main Function of MPC
- The MPC determines the repo rate, which serves as the benchmark policy rate to control inflation within the prescribed limits.
- Its decisions are binding on the RBI.
- The RBI’s Monetary Policy Department (MPD) assists the MPC by providing technical inputs and analysis.
Composition and tenure of MPC
- Total members: 6
- From RBI:RBI Governor (Chairperson), Deputy Governor in charge of monetary policy, One member nominated by the RBI’s Central Board
- From Government of India: Three external members appointed by the Government
- Tenure: External members hold office for a period of four years.
Meetings and Voting Rules
- The MPC is required to meet at least four times annually.
- The quorum is four members
- In case of a tie, the Governor has a casting vote (second vote) to break the deadlock.
