What is Monetary Policy Committee (MPC)?-Prelims-2016

  • The Center has notified the formation of Monetary Policy Committee (MPC) under the RBI which will take decision on interest rate or repo rate setting in future. MPC will bring significant changes in the power the RBI governor while deciding on repo rate.
  • The MPC replaces the previous arrangement where the RBI Governor along with a Technical Advisory Committee take decisions on monetary policy including repo rate. TAC had only advisory functions as the central bank governor enjoyed veto power over the committee.

Structure of the MPC

  • The Monetary Policy Committee (MPC) is formed under the RBI with six members. Three of the members are m from the RBI while the other three members are appointed by the government. Members from the BRI are the Governor who is the chairman of the MPC, a Deputy Governor and one officer of the RBI. The government members will be appointed by the Centre on the recommendations of a search-cum-selection committee which is to be headed by the Cabinet Secretary.
  • Under MPC, the governor has a casting vote and doesn’t enjoy veto power. Decisions will be taken on the basis of majority vote.
  • Responsibility of the MPC is to administer the inflation targeting monetary policy regime through determining the policy rate or repo rate to contain inflation.
  • The Committee is to meet at least four times a year and make public its decisions following each meeting. There will be no reappointment of the committee.

Function of the MPC

  • The main responsibility of the MPC will be to keep the inflation targets set by the RBI. The MPC decides the changes to be made to the policy rate (repo rate) to contain inflation within the target level set under India’s inflation targeting regime.  Members of the MPC can suggest reasons for their support or opposition for a policy rate change. This will be published in the minutes of the MPC.
  • In 2015, the Government and the RBI got an MoU regarding the implementation of the inflation monetary policy framework with an inflation target of 4 with a 2% band.

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