MONETARY POLICY COMMITTEE (MPC)

NEWS: MPC ensures that inflation is controlled while supporting economic growth.

Introduction

• The Monetary Policy Committee (MPC) is the body responsible for formulating monetary policy in India.
• It was established under the amended Reserve Bank of India Act, 1934

Background

• Introduced through RBI Act amendment in 2016.
• Based on recommendations of: Urjit Patel Committee
• Under Section 45ZB: Central Government constitutes MPC

Objective of MPC

• Main goal: Control inflation (price stability)
• As per law: MPC determines Policy Rate (Repo Rate) to achieve inflation target

Inflation Target:

• Set by Government (currently ~4% ± 2%)
• MPC decisions are binding on RBI

Composition of MPC

MPC has 6 members: From RBI (3 members)

1. RBI Governor → Chairperson
2. Deputy Governor (Monetary Policy)
3. One RBI official nominated by Central Board

From Government (3 members)

• Appointed by Central Government
• Experts in: Economics, Banking, Finance

Decision-Making Process

• Each member has one vote
• Decisions taken by majority (4 out of 6)
• In case of tie: RBI Governor has casting vote

Monetary Policy Instruments

• Policy Rates: Repo Rate, Reverse Repo Rate,Standing Deposit Facility (SDF),Marginal Standing Facility (MSF)
• Liquidity Management Tools: Liquidity Adjustment Facility (LAF), LAF Corridor, Fine-Tuning Operations
• Reserve Ratios: Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR)