In News:

• The Reserve Bank of India said that it would hold an additional Monetary Policy Committee (MPC) meeting on November 3, 2022.
• This meeting has been called as the RBI has failed to maintain the consumer price index (CPI) inflation target within the 2-6 per cent band for three consecutive quarters, or nine straight months — January to September 2022.

What’s in today’s article:

• About MPC (Purpose, Provisions, Composition, etc.)
• News Summary

About Monetary Policy Committee:

• Based on the recommendations of Urjit Patel Committee (2014), a six-member Monetary Policy Committee (MPC) was constituted for setting the policy rate i.e. Repo Rate.
• The committee was given the status of a statutory body through an amendment to the Reserve Bank of India Act, 1934.
• With this, India joined the set of countries that adopted inflation targeting, starting from 1990 by New Zealand, as their Monetary Policy Framework.
• The Central Government notified in the Official Gazette dated August 5, 2016, that the Consumer Price Index (CPI) inflation target would be 4% (with ± 2% tolerance band) for the period from August 5, 2016 to March 31, 2021.
• The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, medical care, etc.
• Changes in the CPI are used to assess price changes associated with the cost of living.

Composition of the committee:

• The committee comprises of six members (including the Chairman) - three officials of the RBI and three external members nominated by the Government of India.
• Governor of RBI acts as the Chairperson (ex-officio) of the committee.
• Members nominated by the Government hold office for a period of four years from the date of appointment.
• None of the Central Government nominees are eligible to be re-appointed.
• The committee meets quarterly i.e. every three months.
• Decisions are taken by majority vote with each member having a vote.
• In case of a tie, the Chairman has a casting vote.

News Summary

• An additional meeting of the Monetary Policy Committee has been called by the RBI as the committee has failed to maintain the consumer price index (CPI) inflation target within the 2-6 per cent band for three consecutive quarters, or nine straight months — January to September 2022.
  • This is the first time an additional meeting has been called since the formation of MPC in 2016.
• Usually, the MPC meets every three months. As per this schedule, the committee has  already met in April, June, August, and September for the year 2022.
• Under the provisions of Section 45ZN of the RBI Act, 1934, in case the RBI fails to meet the inflation target, it has to present a report to the government explaining the reasons for the failure.
• In the report, the central bank will have to mention the remedial actions it proposes to take, and an estimated time within which the inflation target will be achieved following the timely implementation of the proposed remedial actions.
• Although the MPC is responsible for maintaining the inflation target, the report will be written by the RBI.
• However, the MPC will be consulted — and hence, the RBI has scheduled the additional MPC meeting on November 3.