What is a MPC?
The Monetary Policy Committee would be entrusted with the task of fixing the benchmark policy rate (repo rate) required to contain inflation within the specified target level. A Committee-based approach for determining the Monetary Policy will add lot of value and transparency to monetary policy decisions. The Reserve Bank of India Act, 1934 (RBI Act) has been amended by the Finance Act, 2016, to provide for a statutory and institutionalised framework for a Monetary Policy Committee, for maintaining price stability, while keeping in mind the objective of growth. The meetings of the Monetary Policy Committee shall be held at least 4 times a year and it shall publish its decisions after each such meeting.
The Government, in consultation with RBI, has notified the inflation target dated 5th August 2016 for the period beginning from the date of publication of this notification and ending on the March 31, 2021, as under: -
- Inflation Target : Four per cent.
- Upper tolerance level : Six per cent.
- Lower tolerance level : Two per cent.
As per the provisions of the RBI Act, out of the six Members of Monetary Policy Committee, three Members will be from the RBI and the other three Members of MPC will be appointed by the Central Government. In case there is a tie of votes in the six-member committee’s decision, then the RBI governor will have the final power to take the decision. In that sense, while the MPC seeks to ensure that the decision making is more balanced, in case of a tie, the governor still has the veto right. The meetings of the MPC will be held at least 4 times a year and it shall publish its decisions after each such meeting. The Members of the Monetary Policy Committee appointed by the Central Government shall hold office for a period of four years.
(a) The Governor of the Bank—Chairperson, ex officio;
(b) Deputy Governor of the Bank, in charge of Monetary Policy—Member, ex officio;
(c) One officer of the Bank to be nominated by the Central Board—Member, ex officio;
(d) Shri Chetan Ghate, Professor, Indian Statistical Institute (ISI) —Member
(e) Professor Pami Dua, Director, Delhi School of Economics (DSE) — Member
(f) Dr. Ravindra H. Dholakia, Professor, Indian Institute of Management - Member.