The Monetary Policy Committee (MPC) is an empowered six-member body under the Reserve Bank of India (RBI) Act, 1934 (as amended in 2016). The MPC's primary responsibility is to conduct monetary policy in India with the objective of maintaining price stability while considering the growth objective. The committee is constituted by the Central Government and is chaired by the Governor of the Reserve Bank of India, with the Deputy Governor in charge of Monetary Policy and an officer of the RBI also serving as members. Additionally, three external members, Prof. Ashima Goyal, Prof. Jayanth R. Varma, and Dr. Shashanka Bhide, serve on the MPC for a period of four years.

 

The MPC meets at least four times a year and is tasked with determining the policy repo rate required to achieve the inflation target set by the Central Government in consultation with the RBI. The inflation target is determined once in five years and is measured by the Consumer Price Index (CPI). The Central Government has defined the failure to maintain the inflation target as either the average inflation being more than the upper tolerance level for three consecutive quarters or being less than the lower tolerance level for three consecutive quarters. In such cases, the RBI is required to report the reasons for the failure and propose remedial actions to the Central Government.

 

The Reserve Bank has notified the Reserve Bank of India Monetary Policy Committee and Monetary Policy Process Regulations, 2016, which came into effect in August 2016. The Monetary Policy Process includes a schedule of monetary policy voting/decision meetings announced in advance, meeting notices given not less than 15 days before the meeting, and meeting durations determined by the Committee. The Monetary Policy Department of the RBI assists the MPC in formulating monetary policy by reviewing surveys, macroeconomic projections, and various risks to the outlook. The MPC's resolution is published after every meeting, and each member is required to write a statement specifying their reasons for voting in favor or against the proposed resolution.

 

In conclusion, the Monetary Policy Committee plays a crucial role in maintaining price stability and facilitating the transmission of repo rate changes throughout the financial system. The committee operates under a well-defined framework and is supported by the RBI's Monetary Policy Department. The MPC's resolution, along with the individual member's statements, provides valuable insight into the current economic situation and the outlook for the future.