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.
