Monetary Policy Committee (MPC)

GS 3 Economy

The Monetary Policy Committee (MPC) is a key decision-making body in India responsible for setting the monetary policy, primarily focusing on controlling inflation and stabilizing the economy. It was established by the Reserve Bank of India (RBI) under the RBI Act, 1934, to ensure transparency and accountability in the formulation of monetary policy.

Key features

1. Composition: The MPC consists of six members

1. • Three members appointed by the Government of India, including the Governor of RBI.
   • Three members from the RBI, including the Deputy Governor in charge of monetary policy and two other experts.

2. Role and Functions:

1. • Inflation Targeting: The MPC’s primary objective is to maintain price stability while keeping inflation within the target range set by the government. The inflation target is 4% (with a band of ±2%).
   • Interest Rate Decisions: The committee decides on key policy rates like the repo rate (the rate at which RBI lends to commercial banks) to influence money supply and credit conditions in the economy.
   • Policy Recommendations: Based on economic data and outlook, the MPC makes decisions on monetary policy actions such as interest rate changes to manage inflation and support growth.

3. Meetings: The MPC meets at least four times a year to review the economic situation and adjust policy as needed. The decisions are communicated publicly to ensure transparency.
4. Decision-making: The MPC makes decisions by a majority vote, and the Governor has the casting vote in case of a tie.