RBI Monetary Policy Committee

The Monetary Policy Committee (MPC) is the statutory committee that decides the Reserve Bank of India’s policy rate for monetary policy. It functions under India’s flexible inflation-targeting framework, where the primary objective is price stability while keeping in mind the objective of growth. The numerical inflation target is notified by the Central Government in consultation with the RBI, and the MPC decides the policy rate needed to achieve that target.

Constitutional / legal basis

There is no constitutional provision. The legal basis is the Reserve Bank of India Act, 1934, as amended by the Finance Act, 2016, especially Chapter IIIF on monetary policy; Section 45ZA provides for the inflation target and Section 45ZB provides for constitution of the Monetary Policy Committee.

Key points

• The MPC has six members: the RBI Governor as Chairperson, the Deputy Governor in charge of monetary policy, one RBI officer nominated by the Central Board, and three members appointed by the Central Government.
• The three Central Government appointees are external members and are appointed for a fixed term of four years; they are not eligible for reappointment.
• The MPC’s core mandate is to determine the policy repo rate required to achieve the inflation target notified by the Central Government in consultation with the RBI.
• The inflation target is to be notified once every five years; the Act does not itself permanently fix a numerical target.
• The MPC must meet at least four times in a year, and the quorum for a meeting is four members.
• Each MPC member has one vote; decisions are taken by majority, and in case of equality of votes the RBI Governor has a second or casting vote.
• After each meeting, the resolution and voting pattern are published, and minutes are published later with individual members’ views; if the inflation target is not met as prescribed, the RBI must report to the Central Government the reasons, remedial actions and estimated time for return to target.

How UPSC asks this