What is the Monetary Policy Committee (MPC)?

About Monetary Policy Committee (MPC):

• The MPC was set up after a Memorandum of Understanding between the government and the RBI about the conduct of the new inflation-targeting monetary policy framework.
• The Reserve Bank of India Act, 1934 (RBI Act) has been amended by the Finance Act, 2016 to provide for a statutory and institutionalized framework for an MPC.
• Under Section 45ZB of the amended RBI Act, 1934, the central government is empowered to constitute a six-member MPC.
• Function: The MPC is entrusted with the task of fixing the benchmark policy rate (repo rate) required to contain inflation within the specified target level. 
• The MPC replaced the previous arrangement of the Technical Advisory Committee.
• Composition:
  • MPC will have six members: the RBI Governor (Chairperson),the RBI Deputy Governor in charge of monetary policy, one official nominated by the RBI Board, and the remaining three members will represent the Government of India.
  • The external members hold office for a period of four years.
• The quorumfor a meeting shall be four Members, at least one of whom shall be the Governor and, in his absence, the Deputy Governor, who is a Member of the MPC.
• The MPC makes decisions based on a majority vote.In case of a tie, the RBI governor will have the second or casting vote.
• The decision of the MPC would be binding on the RBI.
• RBI’s Monetary Policy Department (MPD) assists the MPC in formulating the monetary policy.