MONETARY POLICY COMMITTEE (MPC)

About

The Monetary Policy Committee (MPC) is a six-member committee that sets India's benchmark interest rate and is responsible for maintaining price stability.

The Urjit Patel Committee was the first committee to propose the establishment of the Monetary Policy Committee (MPC).

Establishment

The MPC came into force on June 27, 2016, replacing the Technical Advisory Committee. The Finance Act of 2016 amended the RBI Act to establish the MPC and identify price stability as the primary objective of monetary policy.

Purpose

The MPC's mandate is to keep inflation within a specified target level by fixing the benchmark policy rate, also known as the repo rate.

Composition

The MPC is made up of three members from the Reserve Bank of India (RBI) and three appointed by the government. The RBI governor chairs the committee.

Tenure

Each member appointed by the governor has a tenure of four years.

Mandate

The primary objective of the MPC, empowered by the RBI Act, of 1934, is to determine the policy interest rate required to achieve the inflation target.

Meetings

The MPC meets at least quarterly and publishes its decisions after each meeting.

Decision making

The MPC makes decisions by majority vote, with the RBI governor casting the deciding vote in case of a tie. 

Silent-period

To maintain confidentiality, members observe a "silent period" of seven days before and after rate decisions, during which they do not discuss the policy or potential decisions publicly.

PRACTICE QUESTION

Q.Consider the following statements about the “The Monetary Policy Committee (MPC) ”: 

1. The Monetary Policy Committee (MPC) is responsible for maintaining price stability in India.
2. They are empowered by the Banking Regulation Act, 1949.
3. To maintain confidentiality, members observe a "silent period" of 30 days before and after Polty rate decisions.

How many of the above statements is/are correct?

A.Only one

B.Only two

C. All Three

D.None

Answer: A

Explanation:

Statement 1 is correct: 

The Monetary Policy Committee (MPC) is a six-member committee that sets India's benchmark interest rate and is responsible for maintaining price stability.

The Urjit Patel Committee was the first committee to propose the establishment of the Monetary Policy Committee (MPC).

Statement 2 is incorrect: 

The primary objective of the MPC, empowered by the RBI Act, of 1934, is to determine the policy interest rate required to achieve the inflation target.

Statement 3 is incorrect: 

To maintain confidentiality, members observe a "silent period" of seven days before and after rate decisions, during which they do not discuss the policy or potential decisions publicly.