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The Monetary Policy Committee is responsible for fixing the benchmark
interest rate An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, ...
in
India India, officially the Republic of India, is a country in South Asia. It is the List of countries and dependencies by area, seventh-largest country by area; the List of countries by population (United Nations), most populous country since ...
. The meetings of the Monetary Policy Committee are held at least four times a year (specifically, at least once a quarter) and it publishes its decisions after each such meeting. The committee comprises six members – three officials of the
Reserve Bank of India Reserve Bank of India, abbreviated as RBI, is the central bank of the Republic of India, and regulatory body responsible for regulation of the Indian banking system and Indian rupee, Indian currency. Owned by the Ministry of Finance (India), Min ...
and three external members nominated by the
Government of India The Government of India (ISO 15919, ISO: Bhārata Sarakāra, legally the Union Government or Union of India or the Central Government) is the national authority of the Republic of India, located in South Asia, consisting of States and union t ...
. They need to observe a "silent period" seven days before and after the rate decision for "utmost confidentiality". The Governor of the Reserve Bank of India is the chairperson
ex officio An ''ex officio'' member is a member of a body (notably a board, committee, or council) who is part of it by virtue of holding another office. The term '' ex officio'' is Latin, meaning literally 'from the office', and the sense intended is 'by r ...
of the committee. Decisions are taken by majority with the governor having the casting vote in case of a tie. The current mandate of the committee is to maintain 4% annual
inflation In economics, inflation is an increase in the average price of goods and services in terms of money. This increase is measured using a price index, typically a consumer price index (CPI). When the general price level rises, each unit of curre ...
until 31 March 2026 with an upper tolerance of 6% and a lower tolerance of 2%. The Reserve Bank of India Act, 1934, was amended by
Finance Act (India) A Finance Act is the fiscal legislation enacted by the Indian Parliament to give effect to the financial proposals of the Central Government. It is enacted once a year and contains provisions relating to income taxes, customs, excise, Central and ...
, 2016, to constitute MPC which will bring more transparency and accountability in fixing India's monetary policy. The monetary policy are published after every meeting with each member explaining his opinions. The committee is answerable to the Government of India if the inflation exceeds the range prescribed for three consecutive quarters.


Establishment and purpose

Key decisions pertaining to benchmark interest rates used to be taken by the governor of the Reserve Bank of India alone prior to the establishment of the committee. The governor of RBI is appointed and can be disqualified by the government anytime. This led to uncertainty and resulted in friction between the government and the RBI, especially during the times of low growth and high inflation. Before the constitution of the MPC, a Technical Advisory Committee (TAC) on monetary policy with experts from monetary economics, central banking, financial markets and public finance advised the Reserve Bank on the stance of monetary policy. However, its role was only advisory in nature. The setting up of a committee to decide on monetary policy was first proposed by the
Urjit Patel Urjit Patel (born 28 October 1963) is a Kenyan-born Indian economist, who formerly served as the 24th Governor of the Reserve Bank of India and also Deputy Governor of Reserve Bank of India, looking after monetary policy, economic research, ...
Committee. The committee suggested a five-member MPC - three members from the RBI and two nominated by the government. The government initially proposed a seven-member committee - three from the RBI and four nominated by it. Subsequent negotiations led to the current composition of the committee, with the external members having a four-year term. After discussions, the finance ministry and RBI agreed on a six-member MPC that addressed earlier concerns of excessive government influence over monetary policy in the country. The Reserve Bank's Monetary Policy Department (MPD) assists the MPC in formulating the monetary policy. Views of key stakeholders in the economy, and analytical work of the Reserve Bank contribute to the process for arriving at the decision on the policy repo rate. The Financial Markets Operations Department (FMOD) operationalises the monetary policy, mainly through day-to-day liquidity management operations. The Financial Markets Committee (FMC) meets daily to review the liquidity conditions so as to ensure that the operating target of monetary policy (weighted average lending rate) is kept close to the policy repo rate. Monetary Policy Committee came into force on 27 June 2016. Suggestions for setting up a monetary policy committee is not new and goes back to 2002 when YV Reddy committee proposed to establish a MPC, then Tarapore committee in 2006, Percy Mistry committee in 2007, Raghuram Rajan committee in 2009 and then Urjit Patel Committee in 2013.


Composition

The composition of the current monetary policy committee is as follows: # Governor of the Reserve Bank of India – Chairperson, ''ex officio -''
Sanjay Malhotra Sanjay Malhotra (born 14 February 1968) is an Indian bureaucrat and Indian Administrative Service, IAS officer who is serving as the current and 26th List of governors of the Reserve Bank of India, Governor of the Reserve Bank of India since 11 De ...
# Deputy Governor of the Bank in charge of monetary policy – Poonam Gupta # Executive Director of the Bank in charge of monetary policy – Rajiv Ranjan # # Ram Singh, Director, Delhi School of Economics, University of Delhi. # Saugata Bhattacharya, Economist. # Nagesh Kumar, Director and Chief Executive, Institute for Studies in Industrial Development, New Delhi. Members referred from 4 to 6 above, will hold office for a period of four years from the date of appointment while the other three members are official. None of the central government nominees are eligible to be re-appointed.


See also

*
Reserve Bank of India Reserve Bank of India, abbreviated as RBI, is the central bank of the Republic of India, and regulatory body responsible for regulation of the Indian banking system and Indian rupee, Indian currency. Owned by the Ministry of Finance (India), Min ...
* Reserve Bank of India Act, 1934


References

{{Reserve Bank of India Subsidiaries of the Reserve Bank of India Monetary policy