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 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.
Origin of Monetary Policy Committee
The RBI Monetary Policy Committee (MPC) was established based on the recommendation of the Urjit Patel Committee.
- Urjit Patel Committee 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.
- 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
The RBI Monetary Policy Committee determines the policy interest rate in order to
- Provide reasonable price stability.
- Stabilize the business cycle.
- Provide faster economic growth.
- Exchange Rate Stability.
- Generate employment.
Functions of Monetary Policy Committee
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
There are two types of monetary policy instruments: qualitative instruments and quantitative instruments.
- 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 the 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.
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.
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.
Monetary Policy Committee UPSC Notes PDF
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.