Monetary Policy Committee of India

The Monetary Policy Committee (MPC) of India is a key institution responsible for framing and implementing monetary policy in the country.

Monetary Policy Committee of India

It was established in 2016, following the adoption of the Monetary Policy Framework Agreement.

The primary objective of the MPC is to maintain price stability while keeping in mind the objective of growth.

Here are some key aspects of the Monetary Policy Committee in India:

  1. Composition:
    • The MPC is a six-member committee, comprising both the Reserve Bank of India (RBI) officials and external members.
    • The Governor of the RBI is the ex-officio Chairperson of the committee.
    • The Deputy Governor of the RBI, in charge of the Monetary Policy Department, is also a member.
    • Four external members are appointed by the central government based on their expertise in economics, banking, finance, or monetary policy.
  2. Decision-Making Process:
    • The MPC follows a collective decision-making process, and decisions are made by a majority vote.
    • Each member, including external members, has one vote, and in case of a tie, the Governor has the casting vote.
  3. Meetings and Frequency:
    • The MPC meets at least four times a year to review the economic and financial conditions and decide on the monetary policy stance.
    • These meetings are usually held at regular intervals, and the decisions are announced through the bi-monthly monetary policy statements.
  4. Inflation Targeting:
    • The MPC operates under the framework of inflation targeting, with a target set by the government in terms of the Consumer Price Index (CPI).
    • The current target is to maintain inflation at 4% with a band of +/- 2%.
  5. Role in Monetary Policy Formulation:
    • The MPC is responsible for determining the policy interest rates needed to achieve the inflation target.
    • Interest rates, such as the repo rate (the rate at which banks borrow from the RBI), are adjusted based on the prevailing economic conditions.
  6. Transparency and Communication:
    • The MPC places a strong emphasis on transparency, and its decisions are accompanied by detailed statements explaining the rationale behind the policy stance.
    • The committee also holds press conferences to communicate its decisions and outlook to the public.
  7. Importance in the Indian Economy:
    • The MPC plays a crucial role in influencing interest rates and, consequently, the overall economic activity in the country.
    • Its decisions impact borrowing costs, investment, and consumer spending, influencing the broader economic landscape.

The establishment of the Monetary Policy Committee marked a significant shift towards a more systematic and transparent approach to monetary policy in India, aligning it with international best practices. The committee’s commitment to inflation targeting aims to create a stable economic environment conducive to sustainable growth.