Monetary Policy Committee- Functions, Objectives, MPC UPSC Notes

By K Balaji|Updated : October 12th, 2022

The Monetary Policy Committee (MPC) is a committee set up by the Union Government and led by the Reserve Bank of India (RBI). In the initial days, the Governor of RBI was taking all the major decisions related to interest rates before the establishment of the Monetary Policy Committee. In the latest news, the RBI Monetary Policy Committee indicated that the accommodative policy of the central government might fail to follow the inflation target of 6%.

Monetary Policy Committee MPSC UPSC topic is part of the IAS Syllabus and hence, the aspirants must be aware of the Monetary Policy Committee and its Functions, structure, significance, members, and other details of the committee. Understanding the Monetary Policy Committee would also help IAS Exam aspirants deal with other UPSC Indian Economy sections. This article will provide complete details about the Monetary Policy Committee and its functioning.

Table of Content

What Is Monetary Policy Committee?

The RBI Monetary Policy Committee (MPC) is a statutory body constituted as per Section 45ZB under the RBI Act of 1934 by the Central Government. It is a remarkable initiative by the Reserve Bank of India to surge the GDP growth and turn down the percentage of inflation in India.

  • It was brought as an initiative to bring accountability and transparency in fixing the Monetary Policy of India.
  • It was formed with the objective of fixing the benchmark policy interest rate (repo rate) in order to keep inflation within a particular target level.
  • RBI governor is in the charge of taking monetary policy decisions with the advice and recommendations of the technical advisory committee and internal team.

Monetary Policy Committee UPSC Notes

As we have mentioned above, Monetary Policy Committee is part of UPSC Syllabus, and all the candidates preparing for the UPSC Exam must have in-depth knowledge of the Monetary Policy Committee. That is why we have created the Monetary Policy Committee UPSC notes that would help the candidates during their UPEC Exam preparation.

To download the Monetary Policy Committee UPSC Notes PDF candidates can click on the link given below. Keeping the printout of the notes would make the preparation easier, and help them during the revision process.

>> Monetary Policy Committee UPSC

Monetary Policy Committee is a part of the Indian Economy and questions from this section can be asked in both UPSC Prelims and UPSC Mains. Apart from counting on the notes candidates need to follow the right UPSC Books as well.

Origin Of Monetary Policy Committee [MPC]

The RBI Monetary Policy Committee (MPC) was established based on the recommendation of the Urjit Patel Committee. They initially proposed the idea for the formation of a five-member Monetary Policy Committee -three members from the RBI and two nominated by the Government. Later The Government suggested a seven-member committee. Further negotiations resulted in the present composition with 6 members.

  • The Monetary Policy Committee (MPC) was set up under Section 45ZB of the RBI Act of 1934 by the Union government.
  • The first meeting of MPC was conducted on 3rd October 2016 in Mumbai.
  • With the adoption of the Monetary Policy Committee (MPC) in 2016, the monetary policy decision-making process in India has undergone a transformation. From Governor-centric decision-making to entrusting this responsibility to a collegial Monetary Policy Committee (MPC), India has made a transition that brings more transparency and accountability to fixing the Monetary Policy of India.

Monetary Policy Committee Members 2022

The RBI Monetary Policy Committee (MPC) is a 6 member committee. There are in total three internal members and three external experts. The RBI Governor and Deputy Governor are also members of the MPC Committee. Check the list here of all the members that will provide ideation of the structure of the Monetary Policy Committee.

  • It consists of three internal members – the Governor as the Chairperson, ex officio; the Deputy Governor in charge of monetary policy as Member, ex officio; and one officer of the Bank to be nominated by the Central Board as Member ex-officio – and three external experts appointed by the Central Government

Following are the members of MPC RBI

  • RBI Governor as its ex officio chairperson.
  • Deputy Governor in charge of monetary policy, member ex officio
  • An officer of the Bank to be nominated by the Central Board as member ex officio
  • Three persons are to be appointed by the central government.
    • Appointments of this category must be from “persons of ability, integrity, and standing, having knowledge and experience in the field of economics or banking or finance or monetary policy

Current 6 Members of the Monetary Policy Committee

The MPC RBI includes 6 members currently namely-

  • Shaktikanta Das (Governor of RBI)
  • Michael Debabrata Patra (Deputy Governor)
  • Rajiv Ranjan
  • Jayanth R. Varma,
  • Ashima Goyal-
  • Shashanka Bhide-

Objectives Of Monetary Policy Committee [MPC]

The Monetary Policy Committee is an initiative to improve the repo rate, reverse repo rate, liquidity etc. The RBI Monetary Policy Committee determines the policy interest rate in order to achieve the following objectives.

  1. Provide reasonable price stability.
  2. Stabilize the business cycle.
  3. Provide faster economic growth.
  4. Exchange Rate Stability.
  5. Generate employment.

Functions Of Monetary Policy Committee

The main objectives and functions of monetary policy committee are to maintain a balance in the business cycle, to surge the rate of GDP and economic growth, and to turn down the witnessed inflation rates. The Monetary Policy Committee and its functions are as follows:

  • The Monetary Policy Committee(MPC) is required to meet at least four times a year.
  • The quorum required for the meeting of the MPC is four members.
  • Each member of the MPC has one vote, and in the event of an equality of votes, the Governor has a second or casting vote.
  • Once every six months, the Reserve Bank is required to publish a document called the Monetary Policy Report.

Instruments Of Monetary Policy Committee [MPC]

There are two types of monetary policy instruments: qualitative instruments and quantitative instruments. The numerous instruments of the monetary policy committee assist it in achieving the requisite objectives.

  • Quantitative instruments: Repo rate, Reverse Repo rate, Marginal Standing Facility (MSF), Bank Rate, Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), Open Market Operations (OMOs)
  • Qualitative Instruments: Direct action, change in the margin money, and moral suasion.

By managing the Monetary Policy, the monetary authority of the country regulates the supply of money in an economy and influences macroeconomic factors.

  • The Monetary Policy adjusts interest rates to sustain price stability and to maintain the predictable foreign exchange rates
  • The Reserve Bank of India is the country's central banking authority. It is in charge of monetary policy in accordance with the government's development goals.
  • Monetary policy can be either contractionary or expansionary. A policy that increases the supply of money in the economy is called expansionary monetary policy, and a policy that decreases the supply of money is called contractionary policy.
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FAQs on Monetary Policy Committee

  • The Monetary Policy Committee is provisioned under the RBI Act of 1934. It aims to improve the economic growth and the GDP of the country. One of the primary objectives of the Monetary Policy Committee is it aims to bring up the level of transparency and accountability, it fixes the repo rate. There are three internal members in the Monetary Policy Committee, the RBI Governor and Deputy Governor are also a part of the Monetary Policy Committee. The main two instruments of the MPC are Quantitative and Qualitative instruments.

  • The Monetary Policy Committee was formed with the mandate of fixing the benchmark policy interest rate in order to keep inflation within a particular target level. There are numerous instruments of the Monetary Policy Committee such as the repo rate, reverse repo rate, the quantitative and qualitative instruments.

  • The structure of the Monetary Policy Committee consists of numerous members such as the internal members, the Governor of RBI, the Deputy Governor of RBI etc. Check the list of members of the MPC.

    • The Monetary Policy Committee has six members.
    • Three internal members – the Governor of RBI, the Deputy Governor in charge of monetary policy, and one officer of the Bank to be nominated by the Central Board as Member ex-officio – and three external experts appointed by the Central Government
  • The Governor of the Reserve Bank of India serves as the ex-officio Chairman of the Monetary Policy Committee. There are numerous other members of the Monetary Policy Committee such as the Governor, and the Deputy Governor of the Reserve Bank of India.

  • As per the amended RBI act, the Monetary Policy Committee is required to meet at least four times a year. The quorum required for the meeting of the Monetary Policy Committee is four members.

  • There are two types of monetary policy instruments: qualitative instruments and quantitative instruments. Check here the meaning and distinction of the quantitative and qualitative instruments as listed here.

    • Quantitative instruments: Repo rate, Reverse Repo rate, Liquidity Adjustment Facility (LAF), Marginal Standing Facility (MSF), Bank Rate, Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), Open Market Operations (OMOs)
    • Qualitative Instruments: Direct action, change in the margin money, and moral suasion.
  • In India, the central monetary authority is the Reserve Bank of India (RBI). I is the responsibility of the officials of the Reserve Bank of India (RBI) to implement monetary policy in India

  • The Monetary Policy Committee (MPC) is a statutory body constituted as per Section 45ZB under the RBI Act of 1934 by the Central Government. The main objectives of the Monetary Policy Committee are surging economic growth and meeting the demands of inflation.

  • The main functions of Monetary Policy Committee are to provide stability in the economy and increase the GDP and economy. It also aids in generating and surging employment rates. The numerous instruments of the MPC assists in achieving the required objectives.

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