• The central government has reconstituted the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI).

• The panel, which decides interest rates, is headed by the Reserve Bank of India Governor.

The government appointed three members:

i) Ram Singh, director of Delhi School of Economics, University of Delhi.

ii) Saugata Bhattacharya, economist.

iii) Nagesh Kumar, director and chief executive, Institute for Studies in Industrial Development, New Delhi.

• The reconstituted MPC is scheduled to have its first meeting from October 7 to 9. Following the MPC meeting, Governor Das will announce the bi-monthly monetary policy on October 9.

• The members of the MPC appointed by the central government will hold office for a period of four years, with immediate effect or until further orders, whichever is earlier.

Monetary policy by RBI

• Monetary policy refers to the use of monetary instruments under the control of the central bank to regulate magnitudes such as interest rates, money supply and availability of credit with a view to achieving the ultimate objective of economic policy.

• The Reserve Bank of India (RBI) is vested with the responsibility of conducting monetary policy. This responsibility is explicitly mandated under the Reserve Bank of India Act, 1934.

• The primary objective of monetary policy is to maintain price stability while keeping in mind the objective of growth. Price stability is a necessary precondition to sustainable growth.

• In May 2016, the Reserve Bank of India (RBI) Act, 1934 was amended to provide a statutory basis for the implementation of the flexible inflation targeting framework.

• The amended RBI Act also provides for the inflation target to be set by the government of India, in consultation with the Reserve Bank, once in every five years.

• The Monetary Policy Committee (MPC) constituted by the central government under Section 45ZB determines the policy interest rate required to achieve the inflation target.

Members of MPC:

• There are six members in the MPC and the RBI governor is the chairperson.

As per the provisions of the RBI Act, out of the six members of the Monetary Policy Committee, three members will be from the RBI and the other three Members of MPC will be appointed by the central government.

Composition of MPC:

a) The Governor of the RBI — chairperson, ex officio

b) Deputy Governor of the RBI, in charge of Monetary Policy — member, ex officio

c) One officer of the Bank nominated by the Central Board — member, ex officio

d) Three persons appointed by the central government — members.

• The MPC is required to meet at least four times in a year.

• The Reserve Bank’s Monetary Policy Department (MPD) assists the MPC in formulating the monetary policy.

Additional Read:

RBI’s 90th anniversary

The Reserve Bank of India is the central bank of the country. The RBI commenced its operations on April 1, 1935. The RBI regulates and supervises public sector and private sector banks.

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