NEWS

A Member of the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI), has been opposing the RBI’s accommodative policy stance

MONETARY POLICY

• The primary objective of the RBI’s 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 RBI Act was amended to provide a legislative mandate to the central bank to operate the country’s monetary policy framework. The framework, according to the RBI website, “aims at setting the policy (repo) rate based on an assessment of the current and evolving macroeconomic situation; and modulation of liquidity conditions to anchor money market rates at or around the repo rate.
• Repo rate changes transmit through the money market to the entire the financial system, which, in turn, influences aggregate demand – a key determinant of inflation and growth

THE COMMITTEE

CONSTITUTION

• Under Section 45ZB of the amended RBI Act, 1934
• Central government is empowered to constitute a six-member Monetary Policy Committee (MPC)
• First such MPC was constituted on September 29, 2016

AIM

• Determine the policy interest rate required to achieve the inflation target
• Decision of the Monetary Policy Committee shall be binding on the Bank

Members of MPC

Section 45ZB says the MPC shall consist of the RBI Governor as its ex officio chairperson, the Deputy Governor in charge of monetary policy, an officer of the Bank to be nominated by the Central Board, and three persons to be appointed by the central government